When to Sweat the Small Stuff

There are a few misconceptions about the fluctuations in interest rates. First of all rates do not change in 1-2-3% increments on a daily basis. At least it’s very rare and I’ve never seen it happen. Rates do change on a 0.125% or 0.25% or even 0.375% basis from day to day. During the life of the loan this can add up to a lot of money for a borrower and I do not take these changes lightly even though they appear small. However, the change in the monthly payment is not as large as most people imagine. Often the reaction I get from people is “that’s it??”,  as in “that isn’t much”.

So to address how the payment changes for each increase in 0.125% I have created a graph. The plot below assumes a thirty year amortization. Each line is for a different loan amount. As you will notice the slope (average) increases with the loan amount. To determine the change in monthly payment for a 0.25% change in interest rate simply multiply the average by two.

Payment changes for interest rate change

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