(Image: iStcok / ljubaphoto)
Mortgage rates have fallen, hitting an astonishing 14 lows this year.
The average interest rate on a 30-year fixed-rate mortgage was 2.71%, mortgage giant Freddie Mac reported on Dec. 10. This is supposedly the lowest level in around 50 years. In contrast, the interest rate on this mortgage was 3.73% a year ago. The 15 year fixed rate mortgage was 2.26%. Interest rates on both mortgages were unchanged this week from last week but are still at record levels.
Falling mortgage rates for most of the year have increased demand from people looking to refinance or potential home buyers looking to buy. The downside, however, is that property prices have increased as the number of properties for sale has decreased. Observers say this created a buyers market and may have led sellers to seek higher asking prices, potentially undoing some of the savings from lower interest mortgages.
“Despite persistently low mortgage rates, home sales have hit a wall. While homebuyers' appetites remain robust, the shortage of inventory has effectively limited how much higher sales can grow, ”said Sam Khater, Freddie Mac's chief economist, last week.
"Unfortunately, the record low supply combined with strong demand is causing house prices to rise rapidly and undermining the benefits of the low mortgage environment."
What Should People Do When Considering Buying a Home or Refinancing?
Matt Frankel, a certified financial planner and mortgage analyst at The Ascent, gave Black Enterprise tips on what Americans could do to investigate this.
Things to Consider Before Buying a New Home or Getting a New Mortgage:
- Be sure to look around. Different lenders have different interest rates, terms, and fees. It won't hurt your credit to apply to a few different lenders, and a lower interest rate could save you thousands of dollars in the long run.
- Make sure that you are looking not only at the interest rate on the loan but also at the annual percentages (APR). The APR includes things like the origination fee you pay and gives a better picture of the real cost of borrowing money.
- It is worth remembering that while mortgage rates are near record lows, mortgage rates are at or near all-time highs in many markets. So, if you are in the market, it might be a good time to buy a home. However, don't do this just because borrowing is “cheap”.
- Just because you can be approved for a specific loan amount doesn't mean you should. Stick to a mortgage payment that you can easily afford regardless of how much your lender is willing to let you borrow.
- If you can afford it, a 15 year mortgage is worth considering. Not only will you get a lower interest rate than a 30 year loan, but you will also pay off the house in half the time and your total interest expense will be dramatically lower.
Points to consider before refinancing:
- Refinancing is usually worthwhile if you can reduce your mortgage rate by at least 75 basis points (0.75%). Keep in mind that refinancing isn't free – you have to pay the closing costs – so it's important to make sure the monthly savings are worth the cost.
- Similarly, refinancing is generally only worthwhile if the different interest rates make sense and you plan to stay indoors long enough for the savings to offset closing costs. In other words, if you plan to sell your home in another year or two, think twice before refinancing.
- Refinancing can save you money on your monthly payments. However, it is important to calculate how much interest you will be paying on the entire loan. For example, if you still have 20 years on your current mortgage and are refinancing with a new 30 year loan, you could end up paying more in the long run even though your payment goes down.
- Check the rates and fees with various lenders. Buyers are often surprised at the different interest rates from lender to lender, especially when it comes to refinancing.
- The interest rates for disbursement refinancing are usually higher than for simple interest and term refinancing, where no cash is received on conclusion. Taking cash out of your home can still be an affordable way to borrow money for repairs and other expenses. However, it is important to know that you may have to pay more than the industry average.