Mortgage rates have been hitting new record lows since the start of the pandemic, and they fell again this month. The average rate for a 30-year fixed-rate loan dipped to 2.78% as of late July, according to the latest data released by Freddie Mac. That marks the third straight week that rates have dropped.
However, home prices are up — way up. Thanks to low supply and increased demand from the millions of Americans who are relocating, the value of a typical home rose 15% in the past year to $293,000, notes Zillow.
That means even with a lower mortgage rate, you could still pay a lot for your monthly mortgage.
Nonetheless, "buyers should not wait" to see if interest rates drop lower, if they currently have the money to purchase, says Kevin Leibowitz, president and chief executive officer of the New York brokerage firm Grayton Mortgage. "Rates have seen a drop based on uncertainty from the pandemic — we're coming off of the lowest in history — but at some point, this will end."
His advice: "Don't step over the dollars to pick up the pennies, and lock in favorable terms now. One can never time any market with precision, so if the numbers work, then do it."
Video by Richard Washington
For prospective homebuyers, it can be tempting to wait for the hot market to cool off. But if you're following the basic guidelines that financial advisors recommend — taking out a mortgage that's no more than three times what your household earns annually, or that has a monthly payment representing no more than 28% of your gross monthly income — there are reasons to get off the sidelines now.
A family borrowing $250,000 would have a monthly payment of roughly $1,025 and pay $118,849 in total interest, assuming a 30-year fixed-rate mortgage at 2.78%, according to Grow's mortgage calculator.
Let's say they hold off for a year or two and end up buying when the market is a bit cooler, but rates have risen. (The Federal Reserve has said it could start hiking rates as soon as 2023, a policy change that influences long-term mortgage rates.) If they only need to borrow $225,000 but have a rate of 3.88%, their monthly payment would be about $1,057. Over the life of the loan, they would pay $156,124 in interest.
The average home is staying on the market for less than a month. In most of the cities where Leibowitz does business, including California, Florida, New Jersey, and North Carolina, "demand way outstrips supply, and we're seeing properties going over the asking price." Some Americans are so eager that they are willing to buy a home without seeing it in person.
While it makes sense to take advantage of low interest if you're financially equipped to buy a home, don't feel pressured to close a deal if you're not ready. Waiving key protections like a home inspection could end up costing you much more than a slightly higher interest rate.
Experts also warn against draining your retirement savings or emergency fund to buy faster, since that could put you in a bind later on if you face financial hardship or need to make expensive repairs.
Video by David Fang
If you're already a homeowner, you might be feeling some FOMO about these ultralow rates. But you don't have to move to get a good deal: Refinancing your mortgage is an option, as is lengthening the term of your loan to cut down monthly payments.
"Because of the lengthy payback on a mortgage, even a small difference in interest rate can add up to thousands of dollars saved," Bankrate Chief Financial Analyst Greg McBride previously told Grow.
Try searching for federally backed mortgage programs or local initiatives in your state, and shop around for the best rate. "The best way to save on a mortgage is to work with a broker who has multiple options to show," Leibowitz says. "Borrowers should shop around online or otherwise to determine that they're getting favorable terms."
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