Much has been made over the past few weeks regarding interest rates and how they’ve fallen. And you’ve read here as well the importance of interest rates, when you might consider refinancing or how much you can qualify for. You’ve also read here how interest rates shouldn’t be your number one factor when thinking about buying. Yet even though interest rates are very near historic lows and it appears they’re not headed for a major move to the upside, don’t forget what a rate represents—your mortgage payment.
Mortgage loan officers read rate sheets for VA loans each and every day, often referring to them more than once. Perhaps they have a database of clients that could benefit from a VA streamline if rates moved down just another 0.25%. Or not. Loan officers talk to one another about market trends and the question, “So, what do you think rates are gonna do?” is often bandied about. To a loan officer and to a lender in general, mortgage rates mean a lot. But consumers can get carried away concentrating on mortgage rates and not what those rates really represent.
For example, take a $150,000 loan and a 30 year fixed rate of 3.75%. Now say rates move up next week to 4.00%, or 0.25%. If you only think of the rate, that might sound like a pretty big jump. And to a loan officer, it really is. But the difference in monthly payment between 3.75% and 4.00%? Try $694 and $716. 4.00% is higher than 3.75% but the difference in monthly payment is only $22. That’s one extra takeout pizza per month. Think that’s a deal killer?
Don’t ignore rates. That’s not what we’re suggesting by any stretch. Instead, pay attention to what the rate means to your monthly payment. For those that are barely trying to qualify, that $22 just might mean the difference between qualifying for a VA loan or not. And if so, the loan officer has ways to bring down that rate or you can simply borrow a little less. But when rates do eventually go up, the sky won’t fall. It’s just a little adjustment, that’s all.