Do interest rates matter? For quite a few years now we’ve all been hearing that “rates are at historic lows and will only go up.” It was true then and it seems to be true now and the statement fuels the “Buy Now” debate. I think we are better served by educating and giving the tools for the individual to make an informed decision. Rates have bounced around but most would say that 6% is a really high rate.
Assuming all other things being equal, the difference between a loan at 5% and a loan at 6% is 5.23% over seven years (the payment difference is $62.73/month/$100,ooo borrowed). Why seven years? That’s the average time of ownership of a home according to NAR. That means in seven years on a $300,000 mortgage the 5% loan has saved over $15,000 in interest expense.
I used this Lendingtree calculator for my figures.