We get it, being able to get that dream home at a lower price is amazing and what most people aim for. A part of a real estate agent’s job is to negotiate that fair price, but a bigger impact on that 30 year, 15 year mortgage is not the price that the home was sold at, but the mortgage rate. A mortgage rate is the rate of interest charged on a mortgage. This rate is determined by the lender and it can be fixed or it can be a variable rate (it fluctuates.) Here we will give you our top 3 reasons why you should pay attention to the rate of the mortgage, instead of the sales price.
IMPACT ON YOUR DOWN PAYMENT
Your down payment on your new home is essential to closing the deal. When you put do a larger down payment, your rate will be lower, because the way rates work is, it’s determined based on the level of risk the lender is taking by taking on your loan. If you put more down, it is less risk for them, so our advice here is to make the down payment as large as possible. We will go more into depth below why you want to aim for that lower rate. Rates are even better when you aim for 20% down. Know what is best for you and your budget and save as much money as possible prior to looking at homes.
IT IMPACTS YOUR MONTHLY MORTGAGE PAYMENT
We all want that amazing home with a low monthly payment. The way loans work is there is the principal and the interest. The principal is the amount you agreed to pay (the home price) and the other factor is the interest, i.e the mortgage rate. After putting down a good down payment to get a low rate, this will be factored into your mortgage, so a lower interest rate = lower monthly mortgage payments.
HIGHER RATES MEANS YOU WILL PAY MORE OVER THE LIFE OF THE LOAN
Saving money is something that many people aspire to do. Let’s say you want a home that lists for 300,000 and you purchase it on a 30 year fixed mortgage. 30 years from now, would you rather have paid 485,000 for that home, or 579,000? No brainer right? You would definitely want the first option. This is the impact that interests rates have on the long run. The first price is with 3.5%, the second with 5%. So, long story short, having a lower interest rate should be your ultimate goal when purchasing a home (or when getting a loan in general.) Now that you have a better understanding, start saving and go get your dream home!