Tuesday, January 3, 2012

Interest rates

So I have said how having a good credit score can help you with interest rates and saving you more money. I feel that maybe I should go more in depth for those of you whom may think it's no big deal to pay a little more. The better score you have the lower interest rate you will qualify for. I figure if your credit isn't all that great however you do qualify for a mortgage loan (lets say you have a credit score in the high 600's-low 700's) you will probably get about a 7% interest rate. Let's say in this scenario you are looking for a home that will cost $250,000. Over a 30 year mortgage with a fixed rate of 7% interest your monthly mortgage payment will be $1,670 per month. Not too bad if you have the money, however your average monthly interest is about $970.00 a month. That's quite a bit of interest every month. That's about on average what a person will pay in rent. At the end of your 30 year loan if you choose not to refinance, you will have paid $348,772.25 in interest alone.
In searching interest rates I have found many interest rates around 4% (this of course would be given to someone with excellent credit. High 700's and 800's). If this person with a higher credit score got the same mortgage of $250,000 at an interest rate of 4% their monthly mortgage would be $1,200, with an average monthly interest payment of $500. This is far lower than the other person with a lower credit score would pay. At the end of their 30 year mortgage if they didn't choose to refinance, they would pay a total of $179,673.77 in interest.

So in the end a $250,000 home can cost you around $600,000 with poor credit
or it can cost you around $430,000 with excellent credit. It is up to you to choose how you spend your money however I would much rather have the latter.


  1. I actually applied for a Credit Card not too long ago. I grew up with the idea that you never buy anything you don't have the money for, so I've kind of lived by that. I figure being aware of the consequences helps influence better decisions now, so thanks for the insight! :D

  2. You have to be very careful in situations like that!