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If inflation And interest rates has risen in recent years, as has the equity for many homeowners. Right now, levels are at record highs, with the average homeowner close to owning $330,000 in equity. That means owners can easily borrow a six-figure sum while still retaining a healthy portion of equity to potentially use at a later date. And there are currently multiple, cost-effective ways to do this mortgage loans And home equity lines of credit (HELOCs) two of the more attractive alternatives.
Many would now prefer a mortgage loan, thanks to the fixed, lower interest rate compared to the higher, variable rate what HELOCs come with. And home loans are becoming more affordable now that the Federal Reserve has kicked in lowering interest rates. Before you get started, however, it’s crucial to calculate the potential monthly cost of a mortgage loan to determine how affordable it is for your unique circumstances. A $200,000 mortgage loan could provide homeowners with the aforementioned balance between financing now and maintaining six-figure equity for the future. Below we calculate how much a $200,000 mortgage loan will cost per month now that interest rates have been reduced.
See here how low the interest rate on a mortgage loan is that you can get.
How much will a $200,000 mortgage loan cost per month now that interest rates are being reduced?
The the average interest on home loans is 8.36% currently, but it is slightly higher when linked to two common repayment periods: 8.46% for 10-year home loans and 8.37% for 15-year loans. Here’s what a $200,000 loan would cost monthly, coupled with these two conditions:
- 10-year mortgage loan at 8.46%: $2,475.44 per month
- 15-year mortgage loan at 8.37%: $1,954.27 per month
While you could save hundreds of dollars per month by pursuing a longer-term mortgage loan, it will cost you much more in interest over the life of the loan. For example, the 10-year version has a total of $97,052.46 in interest payable, while the 15-year version has $151,768.31 – a difference of about $54,700. But only you know what you can afford each month.
So, under some circumstances, the 15-year mortgage loan may still be better, even if it means paying more interest over time. And remember, the interest on a mortgage loan is tax deductible if used for eligible home repairs, it may ultimately prove to be less of a concern than it seems on paper.
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Don’t forget your credit score
Please note that the above interest rates are currently available to qualified borrowers – emphasis on “qualified.” This means that you are only eligible for the above rates if you have a good to excellent credit score and a clean credit history. If you don’t, the rates offered may be higher and your monthly payments will also be higher. So take steps now – before you apply increase your credit score as high as possible. With interest rates trending downward, you may have some extra time to improve your credit before specifically taking out a mortgage loan.
The bottom line
Currently, a $200,000 mortgage loan comes with monthly payments between approximately $1,475 and $1,955. But as interest rates continue to fall, home loan rates are likely to fall as well. But if you don’t have a good credit score, you won’t qualify for those lower rates. So first increase your credit as much as you can. Then shop around for lenders to find the best one for your unique borrowing circumstances.
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