$350 a Month: The Difference a Year Makes in Interest Rates

Photo courtesy of Urban Turf

January 31, 2020
by UrbanTurf Staff

The average on a 30-year fixed-rate mortgage dropped to 3.51% this week, the lowest level for these rates in almost three years.

“Borrowers who take advantage of these low rates can improve their cash flow by lowering their monthly mortgage payments, giving them more money to spend or save,” Freddie Mac’s Sam Khater said in a statement.

A year ago, long-term rates were almost 100 basis points higher (4.46 percent), so it feels fitting for UrbanTurf to take its semi-regular look to see how changing rates are impacting mortgage payments.

We took a home with a $800,000 purchase price and assumed our buyer has excellent credit. Using the current rates and rates from last year, we examined how monthly mortgage payments changed. In each case, we assumed the buyer put down a 20 percent down payment. Note that these include principal and interest, but not the cost of insurance or taxes.

Here are the two scenarios:

January 2019: The average mortgage rate was 4.46 percent.

Monthly mortgage payment: $3,227
Total outlay on mortgage (monthly payment x 360 months): $1,161,720

January 2020: The average mortgage rate is 3.51 percent.

Monthly mortgage payment: $2,877
Total outlay on mortgage (monthly payment x 360 months): $1,035,720

So, the difference between a rate of 4.46 percent and 3.51 percent is $350 a month or $126,000 over the life of the loan.