How big a difference does a higher credit score make, really? Let’s crunch some numbers--with help from Frank Donnelly, CFP, President of the Mortgage Bankers Association of Metropolitan Washington.
Susie and Jane each take out a $200,000 mortgage (both are 30-year, fixed-rate loans). But Susie has excellent credit and Jane only has fair credit.
|Mortgage amount||Credit score||Best interest rate*||Monthly payment|
|$200,000||Susie’s score: 740||3.99%||$953.68|
|$200,000||Jane’s score: 640||4.75%||$1,043.29|
Not only does Susie pay about $90 less per month, the payoff is even higher over the life of the loan. After 30 years, Susie will have paid a total of $343,325 in principal and interest.
Poor Jane will have shelled out $375,584.
The difference: $32,259.
Just think of what you could do with all that extra cash.
*Individual loan terms vary considerably. These interest rates assume 5% down payments with zero points. Jane will likely also have to spend considerably more on private mortgage insurance and homeowner’s insurance, according to Donnelly.