Interest Rates & Purchase Power

 Many of us have been spoiled by recent interest rates and either weren’t old enough or don’t remember when double digit rates hung around for several years. See Mortgage Rate History Graph for an interesting view of how rates have changed over the years dating back to 1973. You will notice that 5% interest rates were no where to be found until 2003 and later. How long do you think this can last?

 That leads to the question; How do changes in interest rates affect your purchasing power?  Well let’s take a look; The summary below shows how just a ¼% rate difference can change your payment and overall loan amount.

 Loan Amount                                $300,000                 $300,000                   Difference

Interest Rate                                           5%                        5.25%                      0.25%       

Monthly Payment                          $1,610.46                 $1,656.61                    $46.15

Total Paid Over Life of Loan    $579,765.60             $596,379.60                   $16,614

 

 

Loan Amount                              $500,000                  $500,000                   Difference

Interest Rate                                       5.25%                     5.50 %                         0.25%

Monthly Payment                          $2,761.02                $2,838.95                        $77.93

Total Paid Over Life of Loan     $993,967.60        $1,022,022.00                 $28,054.80