8% vs. 7% Mortgage Interest Rates | Monthly Budget & Long-Term Cost Differences

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As mortgage interest rates have declined from a peak of nearly 8%, let's take a look at how much you could save with a 7% interest rate.

Monthly Payment Comparison

If you purchased a $400,000 home with an 8% interest rate, a 20% down payment, and a 30-year loan term, your monthly payment would be $2348. This payment only includes principal (the money you borrowed) and interest (the price for borrowing the money). For the sake of this example, this payment doesn't include property taxes, homeowner's insurance, private mortgage insurance, and HOA fees.

As we compare these figures to a 7% interest rate, your monthly payment is reduced by $220, to $2128 per month. Your annual savings would be $2640. Depending on your monthly budget, the $220 savings may or may not be significant enough to impact your decision to buy a home.

10-Year Comparison

Over the course of 10 years, the cumulative savings of your monthly payments becomes much more impactful. After 10 years at 8% interest, you would have paid a total of $242,487.54 toward interest. At a 7% interest rate, your total interest payments would be $210,127,27. That's a difference of $32,360.27!

30-Year Comparison

Although most homeowners pay off their mortgages before the end of the 30-year term (by selling their homes or making extra payments), let's run the numbers in the worst-case scenario. After 30 years at 8% interest, your total interest payments would be $525,349.29. And after making all 360 monthly mortgage payments at 7% interest, your total amount of interest paid would be $447,261.32. In this scenario, you would save $78,087.97 with a 7% interest rate, as compared to an 8% interest rate!

Questions?

As you can see from crunching the numbers, your mortgage interest rate can have a significant impact on both your monthly budget in the short-term and your financial future in the long-term.

If you have any questions about mortgage interest rates or how to navigate buying or selling a home in the current real estate market, click the link below to schedule a call.