Thinking about purchasing a home? Now might be a good time to take the plunge. According to the latest data released by Freddie Mac, the average rate for a 30-year fixed-rate mortgage has fallen to a record 2.98%. This is the fourth time in five weeks mortgage rates have reached a new low and the first time the average rate has been below 3% since Freddie Mac began tracking mortgage rates in 1971.
Loan rates started falling after the Federal Reserve cut interest rates to zero in March in response to the onset of the coronavirus pandemic, making it really cheap to borrow money. Many Americans are taking advantage of these low rates: Last week, mortgage applications to purchase a home were up 33% from a year ago, according to the Mortgage Bankers Association.
If you're looking to buy, you can use our mortgage calculator to get an idea of what your monthly payment might be. Keep in mind that this is just the payment on the loan and doesn't include additional costs, which can include insurance, property taxes, and private mortgage insurance (PMI).
With a rise in demand comes a rise in prices. The median existing-home price in May was up 2.3% from one year earlier and prices increased in every region. The average purchase loan size rose to a record high of $365,700, according to MBA economist Joel Kan.
Builders are struggling to keep up with the demand, especially with shutdowns due to the pandemic.
"New home construction needs to robustly ramp up in order to meet rising housing demand," said Lawrence Yun, chief economist at the National Association of Realtors. "Otherwise, home prices will rise too fast and hinder first-time buyers, even at a time of record-low mortgage rates."
While the Fed has indicated that it intends to keep rates at zero until the U.S. reaches full employment, which could take years, it might be advantageous to buy soon before prices potentially increase further.
The lowest mortgage rates are available for borrowers with high credit scores and large down payments. According to FICO, rates below 3% are currently available only to borrowers with a credit score of at least 760. Since low interest rates are expected to stick around for a while, it might benefit you to take the time to improve your credit score before trying to buy, since a better credit score and lower interest rate can say you thousands of dollars in the long run.
For instance, a $200,000 30-year loan with a 2.98% interest rate would cost you about $840 monthly and you'd pay about $103,000 in interest over the life of the loan. At a rate of 3.18%, which is what you might qualify for with an average credit score, you'd pay about $863 monthly and $7,500 more in interest.
Even relatively small differences in your score "can add up to to thousands of dollars in savings over the life of a loan, and hundreds in savings on the monthly payment," says Tendayi Kapfidze, chief economist at LendingTree. And once you've boosted your credit, be sure to shop around to get the best rate.
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