As the year 2020 unfolded, it certainly doesn’t feel like a time for much celebration. However, there is one silver lining for those planning on purchasing a home. With mortgage rates at record lows below 3%, new homeowners have the opportunity to take advantage of mortgages that can save them hundreds or potentially thousands a month! This can mean the difference of being able to afford that dream home that was previously out of reach.
How Low Are Mortgage Rates Today?
When we look back at history over the past 50 years, mortgage rates have fluctuated dramatically, with their peak at nearly 19% during the recession of the early 80s! Contrast that to today when you can get a 30 year fixed mortgage under 3%, assuming you have a strong credit score and application.
Graph of historical mortgage rates – image from https://fred.stlouisfed.org/graph/?g=NUh
As seen in the above graph, mortgages rates are at record lows today. The recent announcement by the Fed has given reassurance to home buyers that these record low rates are going to be around for a few years.
How Much Will I Save With These Low Rates?
Depending on the size of the mortgage, even a quarter point rate savings can mean saving hundreds of dollars each month. For example, someone shopping for a 30-year fixed $400,000 mortgage may be quoted 2.875% today versus 3.5% a few years ago (which is still a great rate by historical standards!). The 2.875% rate would create a monthly payment of $1,660 versus $1,796 had they received the higher 3.5% rate. Over the course of a 30-year mortgage this would translate into $48,960 of interest savings!
The best way to understand the impact to your specific situation is to use a mortgage calculator to compute what your monthly mortgage payment would be. For those taking advantage of the record low mortgage rates to refinance their current mortgage, using a refinance calculator will allow you to compute your savings by refinancing your existing loan.
Does This Mean I Can Now Stretch And Afford My Dream Home?
It depends on how far out of your budget your dream home was! Lower interest rates certainly can help you bridge the gap, but we always recommend taking into consideration all the costs of homeownership when making your decision. The record low mortgage rates today generally will help you afford that home that was just out of reach for you previously.
Let’s use the same rates from the previous example where a borrower today could get a 30-year fixed rate loan at 2.875% versus 3.5% a few years ago. Assuming this borrower has an annual income of $100,000 with a monthly debt of $1,000, he or she would be able to afford roughly a $480,000 home versus a $445,000 home had they received a 3.5% rate (note these calculations did not include property taxes, homeowner’s insurance and other home costs for simplicity). That extra $35,000 could be the difference of winning the home if the buyer was purchasing it in a competitive market where there is a bidding war for the home.
As you begin the home search process, an affordability calculator can be helpful to compute the maximum home price you should pay based on your income and other factors. As with anything, calculators should only be used as a factor in your decision making process. We recommend you set a budget and factor in all the various costs of home ownership before making a decision. When you are ready to shop around, you can request mortgage quotes easily through our site.
Is Now the Time to Take Advantage of these Record Low Mortgage Rates?
According to an article written by Doug Whiteman, “Today’s dirt-cheap mortgage rates have helped light a fire under the housing market. Pending home sales — that is, the number of houses under contract — shot up by a record 44.3% from April to May, following two months of declines related to the pandemic.” Indeed many consumers are taking advantage of these historical record low mortgage rates to finance their dream home. In fact, when comparing the pros and cons of renting versus buying, today’s record low mortgage rates have convinced many renters to take the leap. If you are ready to explore homebuying today for yourself, the next step would be to request no obligation mortgage quotes. From there Loan Compass will take you step-by-step through the rest of the process.
Discover More with Loan Compass
Loan Compass simplifies the homebuying process by providing simple directions through easy to understand steps. Our mission is to empower you with the knowledge and tools you need to get the best possible mortgage and home buying experience. Visit our site and we’ll walk you through each step of the process!