If Rip Van Winkle purchased an average home with an average mortgage 30 years ago, waking up today he’d be happy to know that his debt is paid, but he’d also be shocked to know how much interest he paid on his loan. Back in April of 1982, the average 30 year fixed mortgage rate on a home loan according to Freddie Mac was 16.89% and the average home price according to the federal government census was $85,000.
Today, that 30 year rate is down to 4.07% and the average home price is up to $242,300 (as of October 2011.) Rip (without refinancing during his slumber) would have paid close to $280,000 in interest on his $68,000 loan assuming he put 20% down. An average homebuyer today, however would only pay $142,000 in interest on a loan nearly 3 times the size!
Over 30 years, mortgage rates have come from what is considered in today’s world a rip off even by credit card standards, to practically giving away financing on home purchases. While a refinance may not be optimal for everyone’s situation, for those waiting for rates to go lower (than 76% over 30 years), I wouldn’t recommend taking a nap while you wait.
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