If you are purchasing a home and using a mortgage, there are many important factors. While your own financial situation is most important, mortgage interest rates also matter.
Mortgage Interest Rates: Where Do We Stand, Where are We Going?
Where are Interest Rates Now?
One of the most common topics in the mortgage industry is the low interest rates. There is a good reason for this, as interest rates continue to be much lower than in the past. There are a variety of resources you can use for current interest rates, but Mortgage Daily News, a respected information site for the industry, says that the average interest rate for a 30-year mortgage is 2.97%, while the interest for a Freddie Mac 30-year mortgage is 2.88%.
For a 15-year mortgage, the rates are even lower. For a 15-year MBA (Mortgage Bankers Association) loan, the rate at the time of writing this article was 2.35%. For a Fannie Mae 15-year mortgage, the rate is 2.19%.
These interest rates continue to impress. Compared to past rates, the current interest on mortgages is amazing. Consider the fact that in November of 2018, the average interest on an MBA 30-year loan was around 5%. If we compare that to a loan with 3%, you’ll see just how much these rates matter.
Let’s assume we have a loan of $600,000, a perfectly reasonable loan in many areas of the country, including right here in San Diego. Using out Mortgage Calculator, we see that a $600,000 30-year loan with a 5% interest brings a monthly payment (P&I only) of $3,221. Over the course of 30 years (360 payments) we have a total cost of $1,159,560.
So what if we reduce the mortgage interest rates to 3%? That simple reduction drops the monthly payment to $2,530, roughly $700 less a month than the previous loan! The total cost for this loan would be $910,800. This is a total reduction of almost $250,000. Yes, personal factors need to be considered, but there is no doubt that the rate on your mortgage makes a big difference!
Will Interest Rise or Fall in the Future?
Now that we understand where interest rates currently sit, it begs the question: what will interest rates do in the future? Of course, it’s impossible to predict the future, but it seems reasonable to assume that interest rates really can’t fall much further. This leads to the very common, practical, and safe assumption that interest rates will either stay the same or increase; it seems unlikely (although not impossible) that they will drop any more.
According to most experts, the interest rates in the near future will likely stay at their current rates, lingering below 3% for a while. This is due to a variety of factors, including the continued spread of the COVID-19 Delta variant, as well as a recent job report that was, while not devastating, less that expected. These factors contribute to a generally weaker economy, and the weaker the economy, the lower the interest rates.
Over the next month or so, mortgage rates will likely stay around 3% or less. Exactly what they will do in the next 90 days or half a year is harder to predict. After all, the further out you look, the more unknowns come into the picture. Within the next 90 days, however, it’s doubtful that interest rates will climb steeply.
There are some situations that could cause mortgage interest rates to rise faster than expected. The first possible cause is positive: a growing and improving economy. The better the United States economy performs, the higher the interest rates, so if we continue to see improvements in unemployment claims and superior job growth, we may see interest rates start to rise.
The second possible cause for higher interest is a negative: rapid inflation. Inflation, which decreases the value of each dollar, is a cause for concern across the economy, and as inflation rises, so too will interest rates. Inflation has been rising faster than expected in 2021, and while the Federal Reserve generally believes that the rate of inflation will not continue, it could be a cause for significant rises in interest rates.
There is also the potential for increased real estate demand. Under normal conditions, a surge in mortgage applications would lead to higher rates.
There are also possible causes for mortgage interest rates to stay low or to drop even further. The most significant is the Delta variant of the COVID-19 virus. If this virus continues to be a problem, it could slow the economy and cause interest rates to go even lower.
The Federal Reserve is also keeping its benchmark interest low, which means lower interest rates for consumers. If we assume they maintain their low rate, we can also assume that mortgage interest rates will remain low.
What Does This Mean for Homebuyers?
For aspiring buyers, it may be the perfect time to enter the market. Yes, home prices are high and many areas are seeing a red-hot market, which can make it difficult to purchase. But if you wait, you may be forced into higher mortgage interest rates, which could make homeownership more expensive.
What Does this Mean for Current Owners?
For current owners, it may be time to refinance. Refinancing is a great way to take advantage of these low interest rates. If you have lived in your home for a few years and have an interest rate around 4% or 5%, refinancing to lower mortgage interest rates could mean hundreds of thousands of dollars in savings.
Get the Affordable Mortgage You Deserve
As San Diego Purchase Loans, we want to help you get the most affordable mortgage possible. Contact our team today and let us find the perfect loan for your specific needs.
Whether you want to purchase your first home or invest in real estate, we can deliver the service and support you deserve!