Keeping Fluctuating Mortgage Rates in Perspective


Do you obsess about fluctuations in mortgage interest rates?

The average 30 year mortgage rate just went down from last week’s 4.01% to 3.97%, a difference of .04 percentage points. Well…so what? What does that small change mean to you, the homebuyer? Are you keeping fluctuating mortgage rates in perspective?

In a nut shell, it means that a $100,000 house would cost $2 per month less than it did last week for a 30 year mortgage. That’s just $830 over the life of the loan.  Doesn’t seem like much of a difference, does it?

So, let’s assume that next week, mortgage rates will go crazy and suddenly spike by 0.1% to 4.07%. What difference would that make? The monthly payment would rise from $476 (at 3.97%) to $481 per month or an extra $2,078 more over the life of the 30 year loan. That’s still not a really impressive change in the monthly payment or the total cost of the loan.

Bar graph showing mortgage interest rates from 1990 to 2015

So, the small daily and weekly fluctuations in mortgage rates don’t have much of an impact on your wallet. However, those small incremental changes can add up over time. It helps to take a look at the long term perspective. The graph located above shows us the average annual mortgage rates from 1990 to 2015.

In 1990, a 30 year loan for a $100,000 home would have a mortgage rate of 10.13%. That’s a massive difference in interest rates. In 1990, our $100,000 mortgage would have a monthly payment of $887. That amounts to an extra $148,143 over the 30 year life of the loan. To be fair, that $100,000 would have bought us a lot more house in 1990 than it does today.

The lesson for you today is to not panic when you see mortgage rates fluctuating up and down in the near term. Those small fractions of a percentage point differences will have a low impact on the money coming out of your pocket. If you are curious, just search to find an online mortgage calculator and run the numbers for yourself. However, continue keeping fluctuating mortgage rates in perspective.

When should you take notice?

A 0.5% difference in your mortgage rate will make an impact in the cost of your loan. That increase of half an interest point will cost you almost $30 extra per month and more than $10,000 over the life of your 30 year mortgage.