The Numbers That Make Rate Shopping More Than Just a Good Idea

A one percent change in your interest rate may not sound like much. Over thirty years it is going to blow your mind.

Everyone knows that interest rates matter when you are buying a home. What most buyers do not fully grasp is how dramatically a seemingly small difference in rate compounds over the life of a thirty-year loan. Judy Miller at Canopy Mortgage wants to make sure the math is clear before you make a decision about where to get your mortgage.

The Real Numbers on a 300000 Dollar Loan

On a $300,000 loan at 6 percent the principal and interest payment is approximately $1,799 per month.

At 7 percent that same loan jumps to approximately $1,996 per month.

That is nearly $200 more every single month. Over a year that is $2,400. Over the life of a thirty-year loan that single percentage point difference costs approximately $72,000.

That is why rate shopping matters and why even a quarter of a percent difference is worth paying attention to and pursuing. The math is not subtle. The stakes are real and they compound in ways that are easy to underestimate when you are looking at a monthly number rather than a lifetime number.

Why Rate Buydowns Are Worth the Conversation

When the timeline makes sense buying down the rate with discount points can produce meaningful savings. As Judy Miller explains the math usually tells you everything you need to know about whether a buydown makes financial sense for a specific buyer's situation. The calculation comes down to the upfront cost of the points compared to the monthly savings they produce and how long the buyer plans to stay in the home before the break-even point is reached.

The Part of Rate Shopping Most Buyers Miss

Here is where the conversation gets important in a way that most buyers do not anticipate.

A quoted interest rate is not the complete picture. When you are comparing rates across lenders you need to be very specific about what it costs to obtain that rate. Lenders are well known for quoting attractive low rates to buyers who are shopping without being equally clear about the discount points required to secure that rate.

The rate is real. The cost to get there is also real. And a rate that looks significantly better than a competitor's quote may look considerably less impressive once the points are factored into the comparison.

Big online lenders in particular have a track record of leading with low rates while being less than transparent about what those rates are actually going to cost the borrower at closing. The only way to make a true apples-to-apples comparison is to ask every lender to show you in writing exactly what the rate is and exactly what it costs in discount points to obtain it. Without that information you are comparing numbers that cannot be fairly compared.

The Plan That Works for You and Not Just for Your Lender

Comment below or reach out to Judy Miller directly and she will run the numbers for your specific loan amount and situation. She will put together a plan that works for you and not just one that benefits the lender.

Judy Miller is Branch Owner at Canopy Mortgage and would love to be your trusted lender.

Sources

ConsumerFinancialProtectionBureau.gov
MortgageNewsDaily.com
Investopedia.com
FannieMae.com
BankRate.com