So what is all the talk about interest rates you ask.  How big of a difference do they make when buying a home?  The first and most obvious reason to try and obtain a low interest rate is the money saving aspect over the long run.  Today I am going to be discussing the affordability factor that interest rates allow as well as the length of the loan that can be greatly affected by interest rates.

Hypothetically lets say that you would like to keep your house payment around $1200 per month to fit within your budget.  This payment will include the property taxes ($2000) and homeowners insurance ($300).  With the current interest rates hovering around or slightly below 5% you could buy a home for $189,000.  Now compare a 7% interest rate, keeping your payment the same, you would only be able to buy a home for $151,000.  With exception to the interest rate, the 2 loans have the same terms and will be paid off in the same amount of time, the difference is you are spending your money on a bigger nicer home instead of paying the bank that amount of money.  As i have mentioned in previous posts, there are some great deals out there on homes and anybody who is thinking of buying should really take advantage of the interest rates because I can almost guarantee that they will not be this low for much longer.

Now consider getting a 15 year loan vs the popular 30 year loan.  If you were to buy a home for $150,000 and obtained a 15 year loan your payment including the taxes and insurance would be $1338 at a 4.5% interest rate, the payment is a bit higher than the 30 year loan but you pay off your home 15 years sooner and save over $80,000 in interest.

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So the answer to the question, Interest Rates-How big of a difference does it make?  I think the examples show the me today and lets go look at homes!