When you’re thinking of buying a home, you start thinking about interest rates. Just turn to the financial section of your newspaper or get on the Internet and you’ll discover the going rates for mortgages. But how important are rates? Will a percentage point here or there really affect your wallet? Let’s take a look. If you have good credit, you can probably qualify for a competitive interest rate…say 7.25%. On a $100,000 mortgage, your base monthly payment will be about $682. If your credit isn’t so great, you may have to resort to a sub-prime loan, usually one to five percentage points higher than competitive rates. So, if the loan is only one percent higher, you’ll pay about $770 a month. That’s almost $90 a month MORE than the going rate. If you’re willing to risk your payment fluctuating, you can apply for an adjustable rate mortgage. It’ll be about a percentage point lower than competitive rates. 

The monthly payment on an ARM would be roughly $616 a month—about $65 a month LESS than fixed rates. Differences in interest rates really add up. Even a quarter of a percentage point will mean a difference of about $15 to $20 a month! That’s $6,500 over the life of your loan. It pays to shop around for the best rates. You’ll need to call several lenders but finding a great rate will pay you back many times over.