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Act Now: Mortgage Rates Hit New Low
State of the Mortgage Rates
- The benchmark 30-year fixed-rate mortgage fell to 4.27 percent from 4.29 percent last week, according to the Bankrate.com national survey of large lenders. One year ago, that rate was 4.57 percent. Four weeks ago, it was 4.3 percent. The mortgages in this week's survey had an average total of 0.26 discount and origination points.
- The benchmark 15-year fixed-rate mortgage fell to 3.39 percent from 3.4 percent.
- The benchmark 5/1 adjustable-rate mortgage fell to 3.32 percent from 3.34 percent.
- The benchmark 30-year fixed-rate jumbo fell to 4.35 percent from 4.39 percent.
Charting Mortgage Rates
What Does This Mean?
If you've been in the market at all during the last few years, then you've probably heard the story.... after the real estate bubble at the end of the last decade, buyers have been slow to get back into the real estate game. Credit was harder to obtain, foreclosures made certain communities riskier to buy into, and rates hit all-time lows.
If you were lucky enough the last 3-4 years to have good credit, some cash in the bank, and a wish to buy a home or upgrade into a better home, you were in great luck! You had a wide assortment of short sales and foreclosures available in the marketplace for prices lower than what you'd normally have to pay. And because credit was stricter, you got extra love from banks when you had good credit. You probably bought then, and it's not too early to think about buying now.
Buying and Selling Real Estate in Cycles
A constant theme in personal finance and making the most from a dollar is timing. Real estate, being the largest purchase for 95% of folks, should be approached with the same care and understanding of timing and the real estate cycle. Consider the following example:
1.Townhouse is available for $250,000 when the average interest rate is 4.00%. You are moving up from a one bedroom condo worth approximately $125,000 so you're really only looking to finance the other half.
2. Townhouse is available for $250,000 when the average interest rate is 6.00%. You are moving up from a one bedroom condo worth approximately $125,000 so you're really only looking to finance the other half.
The difference essentially will come down to $100-150/month depending on the mortgage rate you are able to get, as well as down payment and other considerations. Looked at in another way, the difference is 12-18 months.
Unfortunately, when you're buying in a market with low interest rates, the biggest downside by far is that you're going head to head against other buyers. Depending on the location and the property that you're interested in, this can result in bidding wars, reduced seller assistance, and shortened window to buy.
Case in point: There's a suburb right outside Phoenix with good schools, incoming development over the next 3 years, decent public transportation and brilliant weather. Anytime you're looking at good location and great property, you're going to have to move quickly and take decisive actions.
Your Window is 9-18 Months
According to the latest reports from Fed meetings, they are continually reducing their bond-buying program. Translation: As bond-buying goes down, the expectation is for interest rates to go up again. The window for this bond-buying program is 9-18 months, so if you want lower monthly payments when locking in a mortgage at low interest rates, you have 9-18 months.
The other portion of the equation is selling your condo to get into the townhouse. And just as someone in your shoes, the other buyer is going to have more leverage and more actual buying power when interest rates are low. If you're selling your condo and considering the timing, then you need to be just as tuned into what's going on with The Fed.
Don't Forget History
Go back to housing pre-bubble and take a look at the interest rates. I remember seeing my parents buying a house long ago and being excited about 7% mortgage rates! Can you believe that? If mortgage interest rates were 7% now, nobody would be in the market except for cash buyers.
Likewise, while interest rates may not go back to those historical averages, even if rates increase to 6%, then that means you're losing a lot of buying power. And with this being your biggest purchase, you've got to get it right. If you buy three houses in your lifetime (most people buy 1 or 2) then that means you have three chances to save thousands and thousands of dollars. Or each time, that means you can buy a property worth thousands more with the same amount of money. That's how important this is, and I hope you'll be able to take action while the opportunity is there.
I believe that being frugal and making smart money choices is like any other exercise. As we continue to practice good habits in saving money where possible, finding deals for what we want, and having a good time at it, then we become better at dealing for a living.
I'm committed to sharing my experiences with getting the most out of using credit cards, saving and spending tips, and I might even add a slice of perspective without trying to be a psychoanalyst like some other personal finance folks out there.
Please let me know what you think and if you'd like to hear my take on a specific topic.