Today’s Mortgage Interest Rates: Rates Smash Another Record Low – According To Forbes
Mortgage rates made history again this week. Interest rates on the 30-year fixed-rate mortgage sunk 12 basis points to 2.72%, a historical low.
Covid-19 outbreaks across the country overshadowed the news of strong vaccine candidates from pharmaceutical companies Pfizer and Moderna, as any approved vaccine may still be months away from reaching most Americans. And, another potential shutdown without any stimulus package in sight has caused the economy to wobble, depressing bond yields and mortgage rates.
Housing Remains Resilient Despite Economic Turbulence
The surprisingly strong housing market is just one more example of how 2020 is truly unique.
Low mortgage rates are certainly one driver of strong home sales this year. The average commitment rate (that’s the interest rate minus fees and mortgage points) for a 30-year fixed-rate mortgage fell to 2.83% in October, down from 2.89% in September, according to Freddie Mac. In contrast, the average commitment rate for 2019 was 3.94%.
Existing home sales shot up for the fifth consecutive month in October, rising 26.6% year-over-year, amid political and economic turmoil. Some 6.85 million home sales were the highest since November 2005, says Joel Kan, associate vice president of economic and industry forecasting at the Mortgage Bankers Association.
“The housing market has only strengthened since the pandemic-induced lows in the spring. MBA’s mortgage application data show similar trends, with early signs that the increase in sales will continue. Purchase applications have now increased year-over-year for more than six months,” Kan says.
What might be most surprising is that sales remain strong as home prices continue to rise. The median existing-home price in October, according to the National Association of Realtors, was $313,000, nearly 16% higher than the same time last year. First-time homebuyers made up 32% of all sales in October.
“Considering that we remain in a period of stubbornly high unemployment relative to pre-pandemic levels, the housing sector has performed remarkably well this year,” says Lawrence Yun, NAR’s chief economist. “The surge in sales in recent months has now offset the spring market losses.”
Housing Shortage Persists
Instrumental in keeping home prices up is the pronounced shortage of homes for sale and lagging new construction. Although housing starts in October were up 6.7%, it’s still not enough to keep up with demand.
The number of homes for sale fell from the previous month to 1.42 million, which is about 2.5 months’ worth of inventory at today’s buying pace, a record low.
Expensive materials coupled with a shortage of land are two main hurdles builders are facing. High tariffs on Canadian lumber have contributed to the exorbitant cost of materials.
30-Year Fixed-Rate Mortgages
The average rate for the benchmark 30-year fixed mortgage dove 12 basis points to 2.72%, according to Freddie Mac’s Primary Mortgage Market Survey. A basis point is one one-hundredth of a percentage point. Last week it was at 2.84%. This time last year, the 30-year fixed was 3.66%.
Borrowers with a 30-year fixed-rate mortgage of $300,000 with today’s interest rate of 2.72% will pay $1,219.96 per month in principal and interest (taxes and fees not included). The total interest paid over the life of the loan will be $139,186.19. That same mortgage taken out a year ago would cost an additional $55,479.20 in interest over the life of the loan.
15-Year Fixed-Rate Mortgages
The average interest rate on the 15-year fixed mortgage slid 6 basis points 2.28%.
This time last year, the 15-year fixed-rate mortgage was at 3.15%.
Borrowers with a 15-year fixed-rate mortgage of $300,000 with today’s interest rate of 2.28% will pay $1,969.45 per month in principal and interest (taxes and fees not included). The total interest paid over the life of the loan will be $54,500.57.
5/1 ARMs
The average rate on a 5/1 adjustable-rate mortgage plunged 26 basis points to 2.85%, down from 3.11% last week.
Last year, the 5/1 ARM was 3.39%.
ARMs are home loans that have an interest rate that fluctuates with the market. In the case of 5/1 ARMs, the first five years have a fixed rate and then switch to a variable rate after that. That means when the average rate rises or falls, so will your rate.
Traditionally, ARMs have lower interest rates than fixed-rate options, making them an attractive choice for borrowers who plan to sell before the fixed period expires.
What Low Rates Mean for Borrowers
Mortgage rates are at record lows, so this could be an opportune time for many folks who want to save money on their home loan or refinance their existing mortgage.
Borrowers who want to get the lowest rate should make sure their credit is in good shape. Lenders reserve their ultra-low rates for those with a strong credit profile, as this is a major indicator that borrowers are at low risk for late payments or default. In fact, borrowers with lower credit scores can be charged one percentage point or more than borrowers with very good or excellent scores.
Before you apply for a mortgage, check your credit score. One way you can improve your score relatively quickly is to pay down debt. You also can request credit for paying monthly bills on time, such as your internet or utility bills.
In addition to your credit score, lenders will look at your debt-to-income ratio, or DTI. This is your total monthly debt divided by your gross monthly income. It’s basically a snapshot of how much you owe versus how much you earn. The lower your DTI, the better chances you have of getting a lower interest rate. Most lenders require a minimum DTI of 43% just to qualify for a mortgage or refinance.
Finally, studies have shown that people who shop around tend to get lower rates than those who get a mortgage from the first lender they talk to. Know what the current average interest rate is as well as what your credit score, income, debt and expenses are before you start applying. If lenders offer you a rate that’s higher than you expected, be sure to ask them why so you can begin improving those areas to qualify for a lower rate.
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