Can someone explain what .5% rate cut means to the mortgage rates to first time homebuyers?
In: Economics
If you buy a $300,000 house, putting $60,000 down, so a $240,000 loan, with a term of 30 years:
At 7%, your monthly payment towards principal and interest would be $1597
At 6.5%, your monthly payment towards principal and interest would be $1517
(these numbers do not include escrow payments for property taxes and homeowner’s insurance, which will depend on other factors but should be the same in both cases).
$80/month isn’t a huge difference, but that means almost $1000 ($960) per year and almost $29,000 ($28,800) over the life of the loan.
In recent years, a rate cut usually is followed by several other rate cuts, so if you have the ability to hold off on buying a home just yet. you may be able to secure a significantly lower rate in 12-18 months. The difference between 7% and 4% ($1146/month) is $451/month, which amounts to $5412/year and $162,360 over the life of the loan.
If you have to buy something before then, keep refinancing in mind. If the rate continues to drop, you can refinance when it starts to plateau in a couple years and lock in a lower rate.
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