Question:

I Live in California and Have a 700 Credit Score. How will This Credit Rating Affect My $250,000, 30-Year Mortgage Payment?

Answer:

Wow. You live in California and you have a 700 credit score. This credit rating will only positively affect your $250,000, 30-year mortgage payment, for sure.

Many people don't realize how much a low credit score will cost them and how beneficial it can be to work on improving it before you sign for a mortgage loan. The table below shows how credit score affects the interest you pay for your 30-year fixed rate mortgage loan (the calculations are based on a loan principal amount of $250,000 and interest rates in California as of January, 2008).

Credit Score APR Monthly Payment Total Interest Paid for 30 Years
720-850 5.712 % $1,453 $273,045
700-719 5.840 % $1,473 $280,372
675-699 6.386 % $1,561 $312,131
620-674 7.556 % $1,758 $382,748
560-619 12.718 % $2,711 $725,781
500-559 13.181 % $2,801 $758,328

If your credit score improves just a little bit more to 720-850 you could save $7,327. Consequently, if you impair your score to 675-699, you would pay additional $31,758.

Since you live in California, your house is probably worth more than your mortgage balance of $250,000 and has either appreciated with at least 20% in the previous several years, or soon will. That way you will have built equity without any efforts and you will soon be able to sell and cash a significant sum. Or, if your 30-year mortgage payment is with an FRM, with a 700 credit score, you have gotten the top rates and probably don't need to ever think of refinance unless, of course, you want a cash out refinance.

If you are having a 2/28 ARM, for example, it is difficult to predict how your mortgage payment will be affected as the rate will adjust up or down at least once a year. In any case, should rates start rising, living in California allows for greater house appreciation and you will be able to refinance with profit, hopefully. Given your credit score of 700, you are probably offered the best rates for an ARM, too, and are among lenders' favorite borrowers.

Should you keep your score that high in California, you should not have difficulties to refinance; or you may choose to sell the house for a considerable profit.

Mortgage rates hit their lowest since 1955. Ask the home loan experts we recommend Quicken Loans how to take advantage of them.
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