Is a 1% Mortgage Rate Difference a Big Deal? A Deep Dive into Savings and Strategies

When it comes to obtaining the best mortgage rate, every dollar matters in the world of homeownership. Even though a 1% difference in interest rate may not seem like much at first, over the course of your loan, it can add up to significant savings, possibly amounting to tens of thousands of dollars. This

Unpacking the Impact of a 1% Difference

Let’s consider the example of Taylor, a first-time homebuyer seeking a 30-year fixed FHA loan with a 20% down payment A 1% difference in interest rate can translate to substantial savings:

Mortgage Rate	Monthly Payment	Principal & Interest
2.99%	$1,073	$842
3.99%	$1,184	$953
4.99%	$1,303	$1,072
5.99%	$1,428	$1,197

As you can see, even a single percentage point drop in interest rate can lead to substantial savings in the first year alone. Multiply these savings over the entire 30-year loan term, and Taylor could potentially save enough to purchase a car, pay for a college education, or even make major home renovations.

The Power of Compound Savings: Even Half a Point Matters

The power of compound savings extends beyond single percentage points. Even a half-point reduction in interest rate can significantly impact your monthly budget. For instance with Taylor’s example:

Mortgage Rate	Monthly Payment	Total Interest
2.99%	$1,073	$842
3.25%	$1,101	$870
3.5%	$1,129	$898
3.75%	$1,157	$926

Staying informed about shifting mortgage rates and market trends is crucial to securing the best possible rate. With recent upward trends in mortgage rates locking in a favorable rate before further increases can save you thousands of dollars in the long run.

Strategies for Lowering Your Interest Rate

Several strategies can help you achieve the lowest possible interest rate and maximize your savings:

1. Improve Your Credit:

A higher credit score translates to lower interest rates. If your credit score is below 650, consider waiting 12-18 months to improve your credit history and score before applying for a mortgage. This will allow you to qualify for a more favorable interest rate.

2. Refinance Later:

If market rates are expected to drop significantly in the future, consider obtaining a home loan now with the intent to refinance later when rates become more attractive. This strategy can save you hundreds of dollars in monthly mortgage payments.

The Bottom Line: 1% Makes a Big Difference

While a 1% difference in interest rate may seem small, its impact on your long-term savings is substantial. By pursuing strategies to secure the lowest possible rate, you can unlock significant financial benefits and enjoy greater peace of mind as you embark on your homeownership journey.

Ready to start your home buying journey? Get pre-approved online to lock in your interest rate and take the first step towards your dream home.

How Much Difference Does 1% Make On A Mortgage Rate?

30-Year Fixed Mortgage Rate	Monthly Payment*	Principal And Interest
[2.99%]	$1,073	$842
[3.99%]	$1,184	$953
[4.99%]	$1,303	$1,072
[5.99%]	$1,428	$1,197

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15-Year Fixed Rate Mortgage Rate

15-Year Fixed Mortgage Rate	Monthly Payment*	Principal And Interest
[2.99%]	$1,611	$1,380
[3.99%]	$1,709	$1,478
[4.99%]	$1,811	$1,580
[5.99%]	$1,917	$1,686

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Should I get a 30-year mortgage? | About That

FAQ

Does 1% make a difference on mortgage?

The Bottom Line: 1% In Pennies Adds Up To A Small Fortune While it might not seem like much of a benefit at first, a 1% difference in interest savings (or even a quarter or half of a percent in mortgage interest rate savings) can potentially save you thousands of dollars on a 15- or 30-year mortgage.

Is it better to get a 30 year loan and pay it off in 15 years?

It will cost about 10–20% more to pay off a 30 year mortgage in 15 years than to take a 15 year mortgage and pay it off in that time. Generally, that’s how much higher mortgage interest rates are on 30-year versus 15-year mortgages, about 10–20% higher.

What is one pro and one con of a 30 year mortgage?

While the 30-year mortgage has a higher fixed rate, it offers flexibility in that you could always pay an additional amount each month to help pay off the loan faster.

What are the disadvantages of a 30 year mortgage?

Cons of a 30-Year Fixed Mortgage Higher interest rate: The longer a lender’s risk of being repaid is stretched out (and the longer the lender’s money is tied up), the higher the interest rate tends to be; customarily, the difference between 15- and 30-year loans is about a half-point.

Is a 30-year mortgage rate right for You?

Decide whether a 30-year mortgage rate is right for you. The 30-year term is the most popular option, but it’s far from the only one. Depending on the lender you work with, you might be able to apply for fixed-rate loans amortized over anywhere from eight to 29 years.

Why is a 30-year fixed mortgage more expensive than a 15-year mortgage?

Higher interest rate. Because the lender is tying up its money longer, 30-year fixed mortgage rates are higher than on loans with shorter terms, such as 15 years. More interest overall. You pay more interest over the life of a 30-year mortgage because you make more payments. You risk borrowing too much.

Is a 30-year mortgage better than a longer term?

Because a 30-year mortgage has a longer term, your monthly payments will be lower and your interest rate on the loan will be higher. So, over a 30-year term you’ll pay less money each month, but you’ll also make payments for twice as long and give the bank thousands more in interest.

What is a 30-year mortgage?

Most 30-year mortgages have a fixed rate, meaning that the interest rate and the payments stay the same for as long as you keep the mortgage. Lower payment: A 30-year term allows a more affordable monthly payment by stretching out the repayment of the loan over a long period