How Falling Mortgage Rates Can Save You Thousands: Is Now the Time to Buy or Refinance?

With mortgage rates hitting their lowest levels in 17 months, now might be the perfect time to rethink your home financing strategy. In this blog post, I’ll discuss what to consider with mortgage interest rates, including strategies to save money, invest, and pay off credit card debt.

Interest rates fell again for thirty-year mortgages, the lowest level in 17 months.  So, now might be a good time to start shopping around for the best mortgage rates.

Key Points

• Mortgage rates are at their lowest levels in 17 months. This presents a favorable opportunity for potential homebuyers and those looking to refinance their existing mortgages.
• Specific examples are provided to show how even a small decrease in interest rates can translate into substantial monthly savings.
• Refinancing can have various benefits depending on your financial goals. This includes saving money and paying off debt.

Is it Time to Buy a New Home or Refinance Because of Lower Mortgage Interest Rates?

The answer to the question is now the time to buy or refinance; it depends. First, find out what interest rate the mortgage lender is offering, then calculate your monthly payment. I’ve run some numbers here to help you put things into perspective. Note, just search online for “mortgage calculator” to be able to run these numbers. You can try this mortgage calculator from Bankrate.com.

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For example, suppose your current mortgage is $250,000 at seven percent interest. Without including taxes or insurance, the mortgage payments would be $1,663.26. However, a drop of .75 percentage points or 6.25% interest on the mortgage reduces payments to $1,539.29. This equals $123.97 in monthly savings.

If the interest rate was 6%, the same mortgage now results in $1,498.88 monthly. Overall, that is a savings of $164.38 each month. But let’s not stop there.

At seven percent interest, the mortgage was to be paid off in 2054 (thirty-year mortgage). If the savings of $164.38 at 6% were applied as an additional monthly payment to your mortgage, the mortgage would be paid off approximately seven to eight years earlier. But here’s another angle.

What if you applied the savings of $164.38 to an IRA (individual retirement account)? That would mean an annual contribution of $1,972.56, far below the maximum contribution. Regardless, that IRA would have accumulated over $186,840 after thirty years.

Now, here’s my favorite part. Did you have to work harder to accumulate that $186.840? No, not at all. As I like to say, money saved is money earned.

 I do wish to point out that there are some additional costs that should be taken into consideration. For example, there are closing costs such as an origination fee or underwriting fee that are generally 1% of the mortgage amount. The bank is also likely to require an appraisal, and any new document filed with the county recorder’s office will have a recording fee that varies per location.

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There could be additional costs, such as title services and attorney’s fees. But the good news is that the bank will provide you with an estimate of these fees.

What About Credit Card Debt?

Now, before you go, let’s one group of numbers again, this time with credit card debt. Suppose you owe $10,000 in credit cards at 18% interest. If you paid $200 monthly, it would take 7 years and 10 months to pay off the balance. In total, you paid approximately $8,622.21 in interest. But let’s add the additional $164.38 in savings to that credit card debt.

Now, making payments of $364.38 towards the credit card balance will pay off the credit card in three years, versus almost eight! Also, the total interest paid is $2,982.02. That’s a savings of $5,640.19 in interest!

Best of luck and happy house or mortgage hunting. Skip down the path of financial freedom as you continue towards your debt-free journey.

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• Bankruptcy
• Insights & Analysis

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This blog post is for informational purposes only and does not constitute financial advice. The information provided is based on the author’s understanding of mortgage rates and home financing. Before making any financial decisions, it is highly recommended to consult with a qualified financial advisor who can provide personalized guidance based on your specific circumstances.