Personal Finance: Homebuyers are facing ‘payment shock’ as 30-year mortgage rates hit 6.7%
Homebuyers are still feeling the sting of elevated prices and higher interest rates. This is happening despite the signs that housing market is cooling.
For example, the average rate on a 30-year fixed-rate mortgage is 6.7% as of Friday, up from 3.3% at the start of 2022, according to Mortgage News Daily. Alongside that, home prices — the median is $435,000 — are up 13.1% on average from a year ago, according to Realtor.com.
The truth is that the difference that interest rates can make can be significant. For illustration: On a $300,000 mortgage at 6.5% over 30 years, monthly payments for principal and interest only would be $1,896.
That same loan at 3% would result in a payment of $1,264 (a savings of $632). Other charges such as property taxes or mortgage insurance would be on top of those amounts.
Yet there are ways to reduce the cost of buying a house. While there’s no one-size-fits-all approach, you can evaluate various options available to you and consider whether any of them make sense for your situation.
aAshorter loan with a more favorable rate may be appealing although the typical mortgage is for 30 years. The average rate for a 15-year loan is 6% as of Friday, according to Mortgage News Daily. Additionally, you save a boatload in interest over the life of the loan and you build equity in the house faster.
Here is an example: A 30-year, $300,000 mortgage with a fixed 6.5% rate would mean paying $382,786 in interest over the life of the loan. In comparison, a 15-year mortgage, even at the same rate, would translate into paying $170,438 in interest during the loan.
Expersts advise that whateve your situation, make sure that you pick a mortgage that you will ultimately be comfortable to deal with.