# With Interest Rates at 7%, Here's How Much More You're Paying for a \$500K House

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KEY POINTS

• Mortgage rates have more than doubled to 6.92% from 3.11%, year to date.
• A \$500,000 mortgage at 6.92% would cost \$420,000 more in interest over the life of the loan compared to one at 2.65%.
• Combined with the home appreciation the past two years, Graham Stephan states that a 30-year mortgage was the best investment in 2021.

Higher interest rates can mean you pay much, much more for a new home.

If you're in the market for a new home, you're probably well aware that mortgage rates are on the rise. In fact, they've more than doubled since the beginning of the year and are now at their highest level in nearly 15 years.

## Mortgage rates have doubled

This means that if you're taking out a mortgage to buy a home, you can expect to pay more in interest than you would have just a few years ago. Since the beginning of the year, mortgage rates have more than doubled to 6.92% from 3.11%.

On a \$500,000 loan with a 3.11% interest rate, your monthly payment would be \$2,137. But at 6.92%, your monthly payment would jump to \$3,299 -- an increase of almost \$1,200 per month, or \$14,000 a year. Over the life of this loan, you would be paying about \$688,000 in total interest. This is 2.5 times more than the \$270,000 total interest you would have paid on the loan at 3.11%, or about \$420,000 more in total. The difference of rates in just 10 months is almost the cost of the \$500,000 home itself!

Just as a comparison, a \$500,000 mortgage at 3.11% would have the same monthly payment as a \$325,000 loan at 6.92%. Of course, this is just one example and your actual payment will depend on a number of factors, including the size of your down payment, the length of your loan, and your credit score.

As a result of the higher mortgage rates, more homebuyers are opting for an adjustable-rate mortgage (ARM) as opposed to a conventional 30-year mortgage. An ARM has a lower introductory rate (often ranging from 0.5% to 1.5% lower than that of a fixed-rate mortgage) for a certain number of years. After that, it will change based on market rates. ARMs may be a good fit for home buyers who plan to sell their house before the end of the introductory rate term or plan to refinance in several years.

In addition, if interest rates go down in the future, you could take advantage of the lower interest rates without having to refinance and pay extra fees. Your monthly payment may drop without you having to do anything at all. There are some risks, however; if interest rates go up, your payments will be higher. So it is important to understand the risks of an ARM before you decide to get one.

If you're thinking of buying a home in the near future, it's important to factor in the increased cost of interest when budgeting for your new monthly payment. And if you're not sure how much you can afford, be sure to talk to a lender to get pre-approved for a mortgage before you start shopping for homes.

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