If you’re in the market for a Metro DC home—your first or your fifth—now is an incredible time to buy. With interest rates near an all-time low, you can get so much more house for your money in DC.
Currently, the benchmark rate for a 30-year fixed-rate mortgage is 4.29 percent, the lowest it’s ever been. The 15-year fixed-rate is 3.42 percent, and a 5/1 adjustable-rate mortgage stands at 3.05 percent. And for DC homebuyers, the rates are even a bit lower at around 4.09 percent, 3.36 percent and 3.01 percent respectively. Here’s what those numbers mean for you.
You’ve found the DC home of your dreams and scored an incredible 4.25 percent for a 30-year fixed-rate loan. This means your principal and interest will be only $492 a month for every $100,000 you borrow. The 30-year mortgage is the best option if you need manageable monthly payments, but there are other alternatives.
With a 15-year loan, your mortgage interest rate will drop, but your monthly payments will increase because you’re financing the loan over a shorter period of time. For example, a 15-year mortgage might have a rate of 3.75 percent but you’ll pay $727 a month for every $100,000 borrowed. The savings on this plan comes in the amount of total interest you save by paying off in 15 years versus 30 years. It’s well worth it if you can handle the higher monthly payment.
Some lenders also offer 10-year loans which deliver even greater interest savings. The interest on a $250,000 loan at 4.0 percent over 10 years is approximately $53,000—total. The same loan over 30 years at 5 percent would mean $233,000 of interest, about 73 percent more.
Adjustable-rate mortgages often have the lowest rates of all loan types, but as the rates adjust so do your monthly payments—usually upward. Consider this mortgage only if you can handle those adjustments.
While the shorter loans save money and build equity quickly, think carefully before you choose. Financial situations can change, making it more difficult to meet those higher monthly mortgage payments. An on-line mortgage calculator can provide hard numbers based on the price of your desired Metro DC home and current interest rate.
As a potential DC homebuyer, you must assess your situation and make the best choice available. But with interest rates this low, you’ll be able to afford that higher-priced home without sacrificing other financial needs. And that’s truly a win-win.
Rachel Valentino and her team at Valentino & Associates at Keller Williams are experts in buying and selling real estate in the Greater Washington, DC area. Contact Rachel's Team today for all of your real estate needs. Also ask about home buying programs in DC that might help you out.
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