Lower Interest Rates Keep More Money in Borrowers Pockets

by Coldwell Banker Evergreen Olympic Realty, Inc. on October 2, 2009

The average rate on a 30-year fixed rate mortgage dropped below 5% for the first time since May 2009. Since reaching 5.59% in mid-June, rates have fallen by 0.65% to land this week at 4.94%. (See related post on October 1, 2009).

That drop means real savings for homebuyers. For example, someone borrowing $300,000 would save $1,450 per year with an interest rate of 4.94% versus 5.59%. That savings equates to nearly one full mortgage payment (principal and interest).

At 5.59% the monthly principal and interest payment on the $300,000 loan would be $1,720. At the 4.94% rate, the monthly payment would be just $1,599.

If you are considering a refinance of an existing loan, there is more to think about than just the monthly savings. Balanced against the lower monthly payment is the cost the lender charges for the refinance loan.

The cost of the loan should then be compared to the monthly savings along with the length of time you plan to stay in your home. If you plan to stay long enough for the monthly savings to outweigh the upfront costs, then the refinance might make sense. If you plan to move soon, the costs may greatly outweigh the savings.

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