Mortgage rates have been competitive for some time, but today the 30-year fixed mortgage rate is at an all-time low.
Mortgage rates have declined in recent weeks, and that’s a good thing for buyers looking to make their monthly payments more affordable. But today, a milestone has been taken: the average rate on a 30-year fixed-rate mortgage has dropped to 2.98%. According to Freddie Mac, this is the lowest level the 30-year mortgage has been in 50 years.
If you are looking for a new home, it might be beneficial to try and lock in a mortgage right away. Mortgage rates can fluctuate from day to day, and the longer you wait, the more likely you are to lose a great deal.
What does a 2.98% mortgage rate mean to you?
Your goal in setting a mortgage rate should be to get as low as possible, as that rate will dictate what your monthly housing payments look like. The average interest rate on a 30-year fixed mortgage was 3.81% a year ago. For a mortgage of $ 200,000, that would have meant a monthly payment of $ 1,492. The total interest payment over the term of this mortgage would be $ 135,916.
In comparison, at the current rate of 2.98%, your monthly mortgage payment of $ 200,000 over 30 years would be $ 1,400, or nearly $ 100 in savings per month. And, your total interest paid over the life of this loan would be $ 102,790. That’s a lot less than what you would pay with an interest rate of 3.81% (which, for the record, remains competitive on its own).
Why such a low rate today? We can thank the COVID-19 pandemic and recession it is stimulated. It’s common for mortgage rates to drop when the economy is bad. While we never want to hope for a recession, the bright side is that a lot of people might be able to get an affordable home loan right now.
It might also be beneficial to seek refinance if you already have a mortgage. To see if this makes sense, you’ll need to weigh the closing costs of the refinance against your potential savings. let’s say you are able to snag a 2.98% interest rate on your refinance, or something in that neighborhood, which in turn saves you $ 100 a month on your mortgage payment. If you spend $ 2,000 in closing costs for this refinance, it will take you 20 months to break even. Therefore, if you plan to stay in your home beyond 20 months, refinancing would be a good idea.
Will you take advantage of today’s rate?
The idea of locking in a 30-year mortgage at 2.98% can be appealing, but before you start counting your savings, know that this maximum rate will usually be reserved for the most advantageous borrowers. To benefit from this rate, or a comparable rate, you must have:
- A high credit rating
- A weak debt to income ratio
- A stable income that is high enough to support your monthly payments
- A deposit of 20% (or more)
This is all true if you are also looking to refinance (instead of a 20% down payment, you will usually need at least 20% of the equity in the home you already own).
Keep in mind that some lenders place more stringent requirements on mortgage applicants. Therefore, even if your credit rating is good, you may not qualify for the most competitive mortgage rate unless it is excellent. Plus, while it can be tempting to get a mortgage at today’s rates, make sure your finances are strong enough to take on the responsibility of buying a home. In addition to your monthly mortgage payment, you will need to cover the following costs:
- Property taxes
- Home insurance
As a rule of thumb, you should have a healthy emergency fund of at least three to six months of living expenses when you buy a home – and that is. after you make your deposit. You also need to make sure that your job is stable – or as stable as possible in the context of our current recession. If you work in the hospitality industry, for example, which has been roughed up in recent months, then taking out a mortgage might not be the best idea, even if you are currently employed.
Finally, if you are going to try to lock in a mortgage, it is worth shopping around with different lenders. Each lender sets their own guidelines for things like credit score requirements, debt-to-income ratio, and income level. Getting a few offers will increase your chances of coming away with an interest rate that you are satisfied with.