Understanding Interest Rates:

Interest rates are not only influenced by market conditions but can vary depending on a buyer's current circumstances and credit history. We encourage all buyers to consult with a lender early on in the buying process so that they can make an informed buying decision and feel good about their investment. 

The Impact of Interest Rates:

Why do interest rates matter? If you’re paying cash, interest is not a consideration, but if you intend to finance, you may consider interest rates. Interest is the price you pay to borrow money and is typically calculated as a percentage of the total amount financed. These interest rates can impact your monthly payment and can cost or save you money each month and over the life of your loan.

Example 1: 7% interest rate

FHA Loan, $300,00 home price, 30 year term, 7.00% interest rate = $1,926 monthly payment

Example 2: 6.12% interest rate

FHA Loan, $300,00 home price, 30 year term, 6.12% interest rate = $1,759 monthly payment

In this example, you can see how just a 1.2% decrease in interest can save you $167 more each month.

Note: The calculation provided above reflects current average interest rates as of 12/1/2023. It is also mportant to acknowledge that these interest rates are subject to change based on factors such as location, credit score, loan amount, down payment, loan type, and terms. As interest rates fluctuate frequently, this is not a financial quote but is intended solely as a self-help tool for personal use. It is not meant to offer investment advice.

Additional Considerations: 

It is important to consider that you may have the option to pay a lower interest rate over the course of the first few years, with an increase after this initial term or you may have the option to lower your interest rate when buying your new home, or in the future if/when market conditions change or your circumstances change for the better, i.e. your credit score improves. This can be done using the following options. 

Buy Down Your Rate: One effective strategy to secure long-term savings is to buy down your interest rate. Investing upfront can lead to saving you money each month and over the entire loan duration.?

Example 1: Without buy down

Conv. Loan, $300,000 home price, 30 year term, 7.35% interest = $2,010 monthly payment

Example 2: With $5,820 (2 point) buy down.

Conv. Loan, $300,000 home price, 30 year term, 6.50% interest rate = $1,839 monthly payment

This is a monthly savings of $171, yearly savings of $2052, and $61,560 over the life of the loan! 

Note: The calculation provided above reflects current average interest rates as of 12/1/2023. It is also mportant to acknowledge that these interest rates are subject to change based on factors such as location, credit score, loan amount, down payment, loan type, and terms. As interest rates fluctuate frequently, this is not a financial quote but is intended solely as a self-help tool for personal use. It is not meant to offer investment advice.

Looking to Buy Down Your Rate? Consider these options:

• Paying Cash: Directly investing your cash-on-hand to lower your interest rate.
• Builder Incentive: Explore incentives offered by builders to reduce your rate. Keystone currently offers a community incentive of up to $12k and sometimes offers additional special incentives specific to certain homes. 
• Lender Incentive: Not all lenders offer the same programs/incentives but as of the publishing of this article, Colony Bank is currently offering a contribution of up to 1% of the loan amount. Leveraging this contribution can significantly impact your upfront costs and long-term savings.

ARM - Adjustable Rate Mortgages:Adjustable Rate Mortgages (ARMs), initially offer lower interest rates but will increase after the initial period, as mentioned above. If you consider this option, we encourage you to be prepared for fluctuations and carefully weigh the pros and cons.

Example 1: ARM for the first few years:

FHA Loan, $300,000 home price, 30 year term, 5.99% interest rate = $17,97 monthly payment

Example 2: ARM after rate increase:

FHA Loan, $300,000 home price, 30 year term, 7.00% interest rate = $1996 monthly payment

Note: The calculation provided above reflects current average interest rates as of 12/1/2023. It is also mportant to acknowledge that these interest rates are subject to change based on factors such as location, credit score, loan amount, down payment, loan type, and terms. As interest rates fluctuate frequently, this is not a financial quote but is intended solely as a self-help tool for personal use. It is not meant to offer investment advice.

Alternatives to ARMs and Buying Down Rates:

• Refinancing: If ARMs or buying down rates aren't for you, you can always consider refinancing down the road when market rates drop. Buyers who have found the home of their dreams, who want to avoid future price increases, bidding wars, etc., consider this option. Before you do, be sure you understand the refinancing process, potential costs (including lender and appraisal fees), and inquire about lender rate protection. 
• 5- year rate protection: Colony Bank, and possibly other lenders, offer a unique 5-year rate protection, allowing the option to refinance a home within five years and waiving the associated lender and appraisal fees. Shop lenders to ensure you know your options. 

Buying down interest rates is a key strategy in maximizing savings on your journey to homeownership. By understanding the options available, consulting with a lender, and exploring incentives like Colony Bank's offerings, you can take significant steps toward securing your dream home while optimizing your financial investment.

Stay tuned for more insightful tips in our "Keystone Keys to Savings" to learn more about lowering your monthly payment, down payment and closing costs so that you can maximize your savings! 

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