With mortgage interest rates at an all-time low, there may not be a better time to purchase a home.
According to recent data released by Freddie Mac, the 30-year fixed-rate mortgage average has been hovering around 3.0 percent for the past several months. During the week of July 16, it even fell below the 3.0 mark to 2.98 percent — the lowest level since Freddie Mac began tracking rates in 1971 — before nudging its way up to 3.01 percent for the week ending on July 23. Rates on 15-year fixed-rate mortgages are also at all-time lows, with an average of 2.54 percent for the week ending on July 23.
So, what does this mean for homebuyers? Let’s look at the numbers.
Immediate and Long-Term Savings
For a fixed-rate mortgage, locking in a lower interest rate — even if it’s just by a fraction of a point — can make a real dent in how much you’ll pay per month and can have an even bigger impact in the long run. Over the lifetime of a 30-year fixed-rate mortgage, your savings could amount to tens of thousands of dollars.
For example, say that you’re looking at a $260,000 30-year fixed-rate mortgage. At a 4 percent interest rate, you’d have a monthly mortgage payment of $1,241. But at a rate of 3.01 percent, which is typical of the rates we are seeing right now, you’ll be paying $1,098 per month. That’s a savings of $143 per month, or more than $1,700 every year. And the difference in total payments of the life of the loan? Over $50,000.
You Can Afford More Home
Lower interest rates also give you more buying power, because it means more of your money can go toward your home than toward interest payments. For some families, this can be the difference between a home with just enough bedrooms or one with a little extra space for the same monthly payment.
For example, if you wanted to keep your monthly payment at $1,000, a 4 percent interest rate would allow you to borrow $209,461. A 3 percent interest rate, however, would get you the same monthly payment and allow you to borrow nearly $30,000 more — which could mean another bedroom, bathroom, or a pool.
Interest Rates Through the Decades
Today’s interest rates are a far cry from the averages we’re used to seeing. At this time last year, the 30-year fixed rate was 3.81 percent, and it was 4.94 percent in November 2018. And the current lows are even more jaw-dropping when looked at from a historical perspective.
Freddie Mac, the federally chartered mortgage investor, began tracking rates in 1971, when the average rate on a 30-year fixed-rate mortgage was 7.31 percent. Since then, the market has fluctuated, with rates as high as 18.45 percent in 1981 and as low as 3.31 in November 2012 — the lowest record rate, until now.
Home Buying in 2020
Today’s record low interest rates stem in part from economic uncertainty surrounding COVID-19, and the trend is at least one silver lining; it’s allowed some renters to find more stability and security by taking advantage of the low rates and buying their first homes. In fact, mortgage loan application volume is up 19 percent from one year ago. For both families who were planning to buy soon and some who thought they could only dream of it, now might be the perfect time.
Want to see what locking in these historically low rates will mean for you? Use our mortgage calculator to calculate your monthly payment and buying power.