The Current Prime Interest Rate
And The Golden Rule of Financing
The Size Of The Mortgage Interest Rate Matters
Interest rates for home mortgages in the U.S. economy are subject to change at any time. As we all know it is wise to borrow money at a lower interest rate to avoid paying more for the loan. In this article we will look at the difference between small incremental increases in the current prime interest rate for a home mortgage and what this means in the total cost for your real estate purchase. These little secrets can save you a lot of money. Your mortgage banker probably forgot to mention them to you, so we will.
If you could afford to borrow $100,000 at a 7% current interest rate for 20 years, you would be making a monthy payment of $775.00 to own your home. But did you know that if you waited until the interest rate increased to 9%, your monthly mortgage payment would be $900.00?
You might have been sitting on the sidelines waiting to save enough for a down payment, or some other reason. If you happened to 'miss the boat' and had to assume a loan at a 9% current interest rate, instead of 7%, your $100,000 home loan will cost you a whopping $30,000 more over the 20 year repayment period.
Another interesting fact is that if you use a standard base figure of a $100,000 loan and start at an interest rate of 7%, every time the interest rates climb by .25% for the 20 year mortgage that you are applying for, you will have to pay $15.00 more on your monthly house payment.
Financing any item is a tricky game. At the very least, time is always a factor working against you financially. Anytime you owe money to a creditor, you always are charged the agreed upon interest rate as long as there is an outstanding balance to be repaid. So to minimize your costs for using this money, you must always try to repay the full amount of each and every loan as soon as possible.
In other words, it is to your advantage to not have outstanding debt. And if you do have a mortgage or other loan, repay the principal as fast as is practical. When you owe money, the clock is always ticking!
The shocking fact is that the whole lending industry makes billions upon billions of dollars every year due to the mismanagement of financial resources by consumers who let their loans 'float' too long on the money markets. This consumer waste translates into huge profits for lending institutions. Your best defense is to be a wise borrower and pay off your loans as soon as you can. Contract for the lowest interest rate that you can get. If you can secure an interest rate that is .25% lower or .5% lower than another source, then you have immediately saved yourself money.
Money management is not mystical by any means. Just remember that money is an expensive tool that must be used with caution and prudence. Borrow your money at the lowest rates and pay off the loan as soon as you can for maximum results. The importance of interest rates can not be overlooked. Your banker knows this very well. So whether you are refinancing an existing mortgage or you are a first time home buyer, be sure to include this fact in your financial plan.
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