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How Quickly Mortgage Rates Can Change, Affecting Your Payments

By JLP | May 29, 2009

Think about this for a minute…

On Tuesday, the rate on a 30-year fixed mortgage stood at about 5.03%. That same mortgage had a rate of 5.44% on Thursday. To get an idea of what this means dollar-wise, I ran some numbers. Because mortgages are such big, long-term loans, small changes in interest rates can have a significant impact on payments and interest expense:

How changes in interest rates affect mortgage payments.

How changes in interest rates affect mortgage payments.

On a $200,000 mortgage, a person would have to pay $50.75 more per month if they took out their mortgage on Thursday instead of Tuesday. This increased interest rate would also mean that they would pay $18,269 more in interest over the life of the loan. Stating it a different way, 80.4% of the first payment would go to pay interest on the 5.44% mortgage while it would have been 77.8% with the 5.03% mortgage.

I included the last column in the graphic as a reference point to where interest rates were back in late October. In other words, mortgage rates have a ways to go before they are back to October’s levels.

If you’re in the market for a house, it pays to pay attention to mortgage rates. If you are looking, you might be wise to try to lock-in your rate. You’re under no obligation to use that rate (should rates decrease) but it does protect you should rates increase before you actually get the loan. Check with your bank or loan officer to see how long this protection lasts.

Topics: Housing Market, Mortgages | 7 Comments »

7 Responses to “How Quickly Mortgage Rates Can Change, Affecting Your Payments”

  1. Stacey Says:
    May 30th, 2009 at 12:43 am

    Last week we refinanced our 20-year 5.78% into a 15-year 4.75% (boy was I hoping for 4.5%!) We'll shave a few years off our mortgage by paying $100+ more/mo.

    JLP: we finally found a tenant for our prior home–yippee! And the security deposit and 1st month rent check cleared–double yippee!! (11 more to go!)Guess I'm now a land baroness :)

  2. MJTM Says:
    June 1st, 2009 at 2:04 pm

    Wow that is an eye opener! But, I would really warn people that trying to time the mortgage market is likely to be futile for many of the people out there

  3. MLR Says:
    June 1st, 2009 at 3:06 pm

    Wow, that is quite insane. I knew that interest rates affect the payments, obviously. But I never paid attention to the difference that a few days could make.

    Good info!

  4. LOL Says:
    June 1st, 2009 at 4:48 pm

    Or just pay off the house in 15 years and save yourself: $126,083 **

    **based on Stacey's 15-year fixed @4.75%

    With a 15-year note, only 51% of the first payment is going to interest…

  5. Corey Says:
    June 1st, 2009 at 7:55 pm

    Never take a security deposit and first months rent with a check. CASH only!!!!!! You'll get burned.

  6. Stacey Says:
    June 2nd, 2009 at 4:06 am

    2/3 was cash, 1/3 was by check. All ok…

  7. Lucy Robinson Says:
    October 4th, 2010 at 8:52 am

    i really hate to get a mortgage but sometimes you just can’t avoid getting one*“