This Is How Much You Could Save With Lower Mortgage Interest Rates

Many homeowners finance their home purchase with a mortgage loan. When getting a mortgage, paying attention to the interest rate is essential. A higher interest rate will result in you paying more interest throughout the life of the loan. But a lower rate could offer savings.

Unfortunately, home loan rates have been higher in the last year. That means most newer homeowners with mortgages are paying more in interest charges. For hopeful buyers who can delay purchasing a home, waiting until mortgage interest rates are lower could be a win for their wallets. Find out how much you could save with lower mortgage interest rates.

Interest rates impact your monthly mortgage payment

Interest rates matter. You could save thousands of dollars by securing a home loan with a lower interest rate. I'll illustrate two home loan examples to show you how the total home lending costs can quickly increase if you have a loan with a higher interest rate.

Many home buyers take out a 30-year fixed-rate mortgage, so we'll compare this kind of home loan. Using data provided by Freddie Mac, the average interest rate for a 30-year fixed-rate mortgage for the week ending Feb. 29, 2024, was 6.94%. Historical data shows the average rate for the same loan type for the week ending March 3, 2022, was 3.76%.

According to a recent Architectural Digest study, the average home buyer's budget for 2024 is $313,141. Considering this stat, I'll compare 30-year fixed-rate mortgage loan prices using a home sale price of $300,000 and a 20% down payment.

I used Motley Fool Money's mortgage calculator to compare the monthly interest costs for both loans based on their rates and the total interest paid throughout the lifetime of each loan.

You could save over $170,000 with a lower interest rate

While paying an additional $474 monthly on interest for a home loan with a 6.94% interest rate may not sound like a huge difference, the extra expense adds up fast.

The total interest costs throughout the 30-year loan period are considerably higher than the total interest paid on a home loan with a 3.76% interest rate. In the example above, you'd pay an additional $170,687 in interest over 30 years.

This cost breakdown shows how important it is to research interest rates before buying a home. Homeowners have little control over average home loan rates, but timing your purchase so you buy when average rates are lower could benefit your bank account.

Refinancing could offer savings

Not everyone can hold out for mortgage rates to drop. If you purchased a home recently or plan to soon and want to take advantage of lower mortgage rates in the future, one option to explore is a mortgage loan refinance. Doing this could allow you to score a better rate when interest rates drop.

A refinance could make your monthly mortgage payment cheaper if interest rates become more affordable. But before you refinance your mortgage, research all the fees to avoid a costly surprise. Closing fees can eat into your savings. Do the math to make sure a refinance is wise.

Lower mortgage interest rates are ideal

Homeowners can benefit from having a mortgage with a lower interest rate. Avoiding $100,000 or more of interest charges could allow you to prioritize other personal finance goals, like investing for your retirement years. It's best to stay alert to mortgage interest rates.