The Difference in Interest Rates and What It Means To You

Interest rates are just one of the factors making up your loan. Your mortgage payment consists of four components: Principal, Interest, Taxes, and Insurance. The high...

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The Difference in Interest Rates and What It Means To You

Posted by Danny Force on Monday, October 24th, 2016 at 1:33am.

Interest rates are just one of the factors making up your loan. Your mortgage payment consists of four components: Principal, Interest, Taxes, and Insurance. The higher the interest rate, the more in interest. Not that hard to figure out. There's more.

Your interest rate is determined by a few different things: credit score, down payment amount, number of years in the loan, and loan program. Things which could get you a better interest rate include: a high credit score, significant down payment (at least 20%), fewer years on the loan (15-20), and more. The various loan programs also have slightly different interest rates as well, so it depends on which program you qualify for. Your lender can help you make this decision, and I can help refer you to a lender when the time comes.

So let's look at a sample scenario of various interest rates. For this example, let's assume a $200K home using a 3% down conventional loan program. This is a very common loan for first time home buyers. Taxes and Insurance will remain the same because the property is the same.

This will also just show the difference in the first payment, as principal and interest rise and fall as to offset each other during the payments

 Interest Rate 3.5% 3.75% 4% 4.25% 4.5% 4.75%
Principal 305.31 292.19 279.52 267.28 255.47 244.08
Interest 565.83 606.25 646.67 687.08 727.50 767.92
Taxes 250 250 250 250 250 250
Insurance 100 100 100 100 100 100
Total 1,221.15 1,248.44 1,276.19 1,304.36 1,332.97 1,362

Keep in mind this doesn't include Mortgage Insurance, which you'll have in the loan unless you have 20% down or are using a VA loan.

It definitely benefits you to get the best interest rate possible, but you also need to be aware of how much you would be paying back if your rate is just a bit higher. Some lenders offer a 'lender credit' to help assist in paying some closing costs, but the interest rate is raised to offset. A good short term solution, but not if you plan to stay in the home long term without refinancing.

If you've bought a home before, this shouldn't be news to you. If you haven't, this might be able to help you when it comes to buy.

So if you're in the market to buy a home, Contact Me Today! I can help you get set up with mortgage and insurance people to make sure you're able to buy a home and have the best coverage.


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Danny Force, Realtor
DFW Legacy Real Estate Group
613 N. Walnut St.
Roanoke, TX 76262
C: 817-903-5442
danny@dannyforce.com

1 Response to "The Difference in Interest Rates and What It Means To You"

A High Income Doesn't Mean You Qualify For An Expensive House wrote: [...]of home
Your credit score is one of the determining factors in the interest rate on your loan. The lower the interest rate, the lower the payment, which means the more expensive house you can purchase. The city in which you purchase can have a[...]

Posted on Sunday, January 21st, 2018 at 9:05am.

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