A 1% Difference in Interest Rate can Save You Thousands on Your Mortgage!

With interest rates in the forefront of the news, media, and radio advertisements, many people are wondering, can 1% difference in interest rates really make that big of a difference to my mortgage payments?  Well, the short answer is definitely!  To make it simpler, let’s work with $100,000 increments.  A 0.5% difference in interest rate saves you $42 of interest, a 0.75% difference saves you $63 of interest, and a 1% difference saves you $84 of interest.

Now we know that interest rates do in fact make a difference in the amount of interest you pay, the following is a real-life example of how much money this really means.  Those of you that have purchased a home or refinanced a loan in the last 5 years or so are probably paying an interest rate of somewhere in the range of 5-6%.  So for this example we will use 5.25% on a $300,000 mortgage.  If we change the rate to 3.8%, which is a rate that is fairly standard in BC right now, you will save 1.45% interest.  In real money terms that equals $362 per month in interest and approximately $22,000 over a 5 year term.  In addition to these savings, your monthly payments are significantly lower, allowing for a positive cash flow each month.

As we would all agree, these savings are significant.  The moral of the story is to always know what you are paying on your mortgage and to be aware of the changes in interest rates, even though 1% doesn’t seem like a lot, it can make a huge difference to your payments!