Rate Drop: How Much Will I Save?

There is so much talk about mortgage rates and how a rate drop makes borrowing money payments lower. Shaving off a percentage or two may not seem like a big deal, but it can add up to thousands of dollars per year.

Let’s take a look at the numbers. 

The Impact of a 1% Drop

Let’s examine the savings based on a $400,000 loan. Suppose you have a 30-year fixed mortgage at an interest rate of 7.5%. The monthly payment (excluding taxes and insurance) would be approximately $2,797. 

If the interest rate drops by 1% to 6.5%, the new monthly payment would be around $2,528. That’s a reduction of $269 per month.

Over the course of a year, this amounts to a savings of $3,228. “That is a significant amount of money that could pay for a new fridge,” says Michelle Korosy, Sales Associate at ERA Justin Realty,  “Or a splurge on a fancy handbag.”

Over the entire 30-year period of the mortgage, the total savings would be about $96,840.

The Impact of a 2% Drop

If the interest rate drops by 2% from 7.5% to 5.5%, the monthly payment on a $400,000 loan will be around $2,271 (excluding taxes and insurance). This is a reduction of $526 a month! That adds up to $6,312 a year. 

“More than six thousand dollars makes the difference between going on a great vacation or staying home,” says Jennifer Darby Metzger, Broker/Owner of ERA Justin Realty, “Over the life of your 30 year mortgage you’d save a whopping $189,360 dollars. Imagine how much that would grow invested in a retirement  fund instead!”

Bottom Line

The amount of monthly savings you will accrue depends on the specifics of your mortgage, such as the remaining balance, the term of the loan, and how many years you have left. “However, these examples illustrate what a 1-2% rate drop translates to in real money terms,” says Korosy, “Whether you use it for a second home or spend it on a Birkin bag is up to you!” 

If you are looking to assess the amount of equity in your home or estimate a monthly payment on a new home,  Michelle Korosy or any of the knowledgeable agents at ERA Justin can help. Give us a call at (201) 939-7500.