When you’re shopping for a new home, the purchase price is usually the first number you notice. But if you’re trying to figure out whether a home actually fits your budget, there’s another number you’ll want to pay attention to: the interest rate.
Your mortgage interest rate can affect what you pay each month, as well as how much you pay in interest over the life of your loan. Even a small change in the rate can make a big difference.
If mortgage rates feel a little confusing, you’re not alone. There are a lot of numbers involved in buying a home, and it isn’t always obvious which ones matter most. Here’s a simple breakdown of how your interest rate affects your monthly payment.
What Is a Mortgage Interest Rate?
Your mortgage interest rate is the cost of borrowing money to buy your home. It’s expressed as a percentage and is used to calculate the interest portion of your mortgage payment.
When you make a mortgage payment, you’re generally paying toward two main things: principal, which reduces the amount you borrowed, and interest, which is the cost of borrowing it.
Your total monthly housing payment may also include property taxes, homeowners insurance, HOA fees and other costs. Your interest rate isn’t the only factor that determines your monthly payment, but it is an important one.
How Does Your Interest Rate Affect Your Monthly Payment?
Let’s say you’re financing $300,000 with a 30-year fixed-rate mortgage. Here’s how the principal-and-interest portion of your payment could change depending on your interest rate:
| Interest Rate | Approx. Monthly Principal & Interest |
| 6.50% | $1,896 |
| 5.50% | $1,703 |
| 4.99% | $1,609 |
In this example, the payment at 4.99% is $287 less per month than the payment at 6.50%.
That’s more than $3,400 in a year.
Over the life of a 30-year mortgage, that difference can add up significantly. That’s why it’s worth looking at the interest rate when you’re comparing homes and mortgage options, not just the purchase price.
Fixed vs. Adjustable Interest Rates
When comparing mortgage options, you may come across fixed-rate and adjustable-rate mortgages.
A fixed-rate mortgage keeps the same interest rate for the agreed-upon loan term, which can make your principal-and-interest payment more predictable over time.
An adjustable-rate mortgage, or ARM, can have an interest rate that changes after a specified period based on the terms of the loan.
If you’re comparing two mortgage offers, don’t assume the lower starting rate is automatically the better option. Look at how long the rate is guaranteed, what fees are involved and what could happen to your payment later.
Before You Start Comparing Homes, Know Your Numbers
Buying a home is a big decision, but understanding the numbers can make the process feel a little less overwhelming.
Before you start comparing homes, ask yourself:
What’s a comfortable monthly payment for you?
Don’t just look at the maximum amount you may qualify for. Think about what fits comfortably into your monthly budget.
What’s included in your estimated payment?
Ask your lender about principal, interest, taxes, insurance and any other applicable costs.
What interest rate and loan terms are available?
The interest rate matters, but so do the loan term, fees and other conditions attached to the loan.
Are there current incentives that could help?
Builder or lender incentives may help reduce some of the costs associated with buying a home, so it’s worth asking what’s available.
What Does This Look Like With Tower Homes?
Now that we’ve looked at how interest rates can affect your monthly payment, let’s see what that could look like with Tower Homes.
For a limited time, Tower Homes is offering a 4.99% fixed interest rate on a 30-year mortgage, paid for by Tower Homes, on qualifying homes in select communities.*
Using the same $300,000 loan example above, a 4.99% rate would result in an estimated principal-and-interest payment of approximately $1,609 per month, compared with approximately $1,896 at 6.50%.
The bottom line? When you’re figuring out what fits your budget, don’t forget to look beyond the purchase price. Your interest rate matters, too.
Ready to explore your options? See available Tower Homes and learn more about the current 4.99% fixed interest rate offer. https://www.towerhomes.com/move-in-ready-homes/
*Valid on homes that close by Nov. 3 and are financed through Trustmark Bank. Restrictions apply. See agent for details.
