Interest rates can vary widely and have ranged between 8.5% and 4.6% over the last eight years. If the rate for a 30 year conventional loan is 5.36%. Although not as low as two months ago, it is still at a very low point in history. But what does this mean for you?
The most important thing to understand is the amount you can save by purchasing while rates are low. For a $200,000 loan, the payment at 5.36% would be $1,118.07 (not including tax and insurance). If the rate goes up to 6.00% the payment goes up to $1,199.10. A difference of 0.64% means $81.03 savings a month, $972.36 savings a year and $29,170.80 savings over the life of the loan.
The second thing to know is that it may make sense to buy points and lock in an even lower rate. Today, buyers are looking at purchasing a home as more of a longer term investment. If you're planning on staying in your home for more than a just a few years, the fees you pay up front will be recaptured over the life of the loan.
Using the same example as above, buying two points will cost you $4,000 dollar, up front. Each point you buy will lower the interest rate by about 0.25%. Now, instead of the 5.36% rate, you have a 4.86% rate. Your payment will drop from $1,118.07 to $1,056.60 and save you $61.47 a month. After 5.4 years, you will have recouped the $4,000.00 and the rest will be savings. Over the life of the loan, you will save $18,129.20. That is HUGE.
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