Homes have been flying off the market because the supply is so low and buyers greatly outnumber sellers in most markets. Many people are jumping into the market in hopes of becoming a homeowner before mortgage rates rise.
Let’s say rates do rise a full 1 percent by the end of the year. How much does a 1% difference in a mortgage rate make? How about a 0.5% difference? 0.25%? 0.125%?
Before we dive in to the numbers, let’s go through some basic info on mortgages.
Mortgage rates are usually offered in increments of 0.125%. You might see rates advertised as 3.96 or 3.99% APR, but the rate you be paying will probably be 3.875% or 4%. APR factors in the total cost of the loan including fees and other costs such as processing fees, underwriting fees, discount points, origination points, etc. Sometimes lenders give a credit for those fees up front if you agree to take a higher rate.
There are many different mortgage products, but the 30-year fixed is the most common. Some other common mortgages are the 15-yr fixed, 7/1 ARM (adjustable rate mortgage), and the 5/1 ARM. In my experience as a realtor, almost all first-time homebuyers have opted for the 30-year fixed. Personally, I have two mortgages right now. One is a 30-yr fixed. The other is a 7/1 ARM. I’m planning to pay the ARM off early or sell that property. ARMs are especially risky right now. Don’t get one unless you know what they are.
Related: Paying Off a 30 Year Mortgage in 5 Years
Although most mortgages are 30-year products, they are usually paid off or refinanced within about 10 years. That makes the 10-year bond a good way to predict interest rate changes. When 10-year bond yields go up, mortgage rates tend to go up, and vice versa.
I created 2 tables below. Table 1 shows how much a 1% difference in mortgage rate makes on a monthly payment. Table 2 shows how much a 1% difference in mortgage rate makes in total interest paid over 30 years. I added some increments in there to show you how much it will cost if the rate increases an eighth, quarter, half, and a full percent.
The first column is the loan amount or how much you borrow from the bank. The row across the top are different interest rates between 4% and 5%. I used rates between 4% and 5% because mortgage rates are currently hovering around 4% (as of April 2017) and are expected to go up.
Table 1 shows you that the monthly mortgage payment for a $200,000 loan will differ by $239 if the rate goes up 1%.
If you borrow $400,000, a 1% increase will add $477 to your monthly payment. Of course, the more you borrow, the more an interest change will affect you.
| Table 1: Monthly payment (rounded) for 30-yr fixed rate mortgage | ||||||
| Loan amount | 4.000% | 4.125% | 4.250% | 4.500% | 5.000% | Cost of 1% per month |
| $50,000 | $239 | $246 | $254 | $269 | $298 | $60 |
| $100,000 | $477 | $492 | $507 | $537 | $597 | $119 |
| $150,000 | $716 | $739 | $761 | $806 | $895 | $179 |
| $200,000 | $955 | $985 | $1,015 | $1,074 | $1,194 | $239 |
| $250,000 | $1,194 | $1,231 | $1,268 | $1,343 | $1,492 | $298 |
| $300,000 | $1,432 | $1,477 | $1,522 | $1,611 | $1,790 | $358 |
| $350,000 | $1,671 | $1,723 | $1,775 | $1,880 | $2,089 | $418 |
| $400,000 | $1,910 | $1,969 | $2,029 | $2,148 | $2,387 | $477 |
| $450,000 | $2,148 | $2,216 | $2,283 | $2,417 | $2,686 | $537 |
| $500,000 | $2,387 | $2,462 | $2,536 | $2,686 | $2,984 | $597 |
| $550,000 | $2,626 | $2,708 | $2,790 | $2,954 | $3,282 | $656 |
| $600,000 | $2,865 | $2,954 | $3,044 | $3,223 | $3,581 | $716 |
Table 2 shows the total interest paid over 30 years. This is how much interest you pay if you keep the mortgage for 30 years and don’t make any additional payments.
For a $200,000 loan, a 1% difference means you will pay an additional $35,935 over 30 years.
If you borrow $400,000, you will pay an additional $71,870 in interest over 30 years.
| Table 2: Total interest paid (rounded) over 30-yr fixed rate mortgage | ||||||
| Loan amount | 4.000% | 4.125% | 4.250% | 4.500% | 5.000% | Cost of 1% over 30 yrs |
| $50,000 | $35,935 | $37,058 | $38,181 | $40,427 | $44,918 | $8,984 |
| $100,000 | $71,870 | $74,115 | $76,361 | $80,853 | $89,837 | $17,967 |
| $150,000 | $107,804 | $111,173 | $114,542 | $121,280 | $134,755 | $26,951 |
| $200,000 | $143,739 | $148,231 | $152,723 | $161,706 | $179,674 | $35,935 |
| $250,000 | $179,674 | $185,289 | $190,903 | $202,133 | $224,592 | $44,918 |
| $300,000 | $215,609 | $222,346 | $229,084 | $242,560 | $269,511 | $53,902 |
| $350,000 | $251,543 | $259,404 | $267,265 | $282,986 | $314,429 | $62,886 |
| $400,000 | $287,478 | $296,462 | $305,445 | $323,413 | $359,348 | $71,870 |
| $450,000 | $323,413 | $333,519 | $343,626 | $363,839 | $404,266 | $80,853 |
| $500,000 | $359,348 | $370,577 | $381,807 | $404,266 | $449,184 | $89,837 |
| $550,000 | $395,282 | $407,635 | $419,987 | $444,692 | $494,103 | $98,821 |
| $600,000 | $431,217 | $444,693 | $458,168 | $485,119 | $539,021 | $107,804 |
Don’t pressure yourself into buying a home if you’re not ready. Renting is not a waste of money and has its purpose. If you are thinking about buying, make sure you educate yourself about the pros and cons of being a homeowner and the financial responsibility and commitment.
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The numbers for the payment are totally wrong. You calculated 6 percent with a 2 percent difference, not 5 percent.
I’m happy to make corrections if I made a mistake. Could you be a little more specific as to where you think it is? I can’t tell from your comment. Thanks!