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On June 15th, Janet Yellen and the Federal Reserve will decide whether or not to increase interest rates. While a potential 0.5% increase in rates might not seem like much, it can actually significantly impact your mortgage payment.
For example, let’s say you’re buying a $600,000 house and you put 10% down. That means your mortgage is $540,000. If you have a 4% interest rate, your mortgage payment on that loan is going to be $2,578 a month. If rates go up to 4.5%, your mortgage will be $2,736. That’s a difference of $158 a month.
While that might not seem like much, you have to consider how the loan is amortized over that period of time in order to understand the true cost of the loan. Let’s look at that same example again. If you have the 4% interest rate, $1,800 of that mortgage payment goes to the interest and $778 goes to the principal.
If the rates go up 50 basis points, your total interest payment is $2,025 and your principle is only $711. That’s $225 more going to your interest rather than your principal. That’s $2,700 a year in additional interest paid because of that rate increase. The loan is amortized differently because it’s a higher interest rate.
On June 15th, we’ll know whether rates will increase or not. If you have any questions, give me a call or send me an email. I would be happy to help you!
For example, let’s say you’re buying a $600,000 house and you put 10% down. That means your mortgage is $540,000. If you have a 4% interest rate, your mortgage payment on that loan is going to be $2,578 a month. If rates go up to 4.5%, your mortgage will be $2,736. That’s a difference of $158 a month.
While that might not seem like much, you have to consider how the loan is amortized over that period of time in order to understand the true cost of the loan. Let’s look at that same example again. If you have the 4% interest rate, $1,800 of that mortgage payment goes to the interest and $778 goes to the principal.
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A small rate increase can significantly impact your mortgage.
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If the rates go up 50 basis points, your total interest payment is $2,025 and your principle is only $711. That’s $225 more going to your interest rather than your principal. That’s $2,700 a year in additional interest paid because of that rate increase. The loan is amortized differently because it’s a higher interest rate.
On June 15th, we’ll know whether rates will increase or not. If you have any questions, give me a call or send me an email. I would be happy to help you!
