The news is often throwing out there that mortgage rates are at an all-time low. But what does that even mean? How can the rates continually be at an all-time low? The fact is that rates continue to drop, and getting a home mortgage now is cheaper than it has ever been. At least in the recent history that Freddie Mac has been keeping track of rates. What they found was that at the beginning of May, rates on 15-year mortgage loans hit all-time lows. Since then, they have come up just slightly, but they are still much lower than they have been historically.
Every week Freddie Mac compiles data on mortgages. They look at the rates and how they compare to previous rates. This data goes back over 40 years for the 30-year mortgage product, and over 20 years for the 15-year mortgage. You can see the chart showing the changes in loan rates here.
This week the rates on a 15-year loan came in at just 2.69%. While this is .08% higher than last week, don’t worry if you were not able to get the lowest of the low. On a $200,000 loan, that .08% means less than $8 extra per month. On the bright side, if you had refinanced just a year ago, you would be locking in rates of over 3%.
The 15-year loans are not the only product that is seeing extremely low interest rates. The 30-year loan is currently being offered at 3.51% (up from 3.42% last week). These rates are also some of the lowest in history, down from 3.79% at this point last year, and down from nearly 6% five years ago.
There are many great benefits to a low interest rate environment. Those refinancing will see extra savings each month. Consider this scenario: If you took out a $200,000 15-year loan at 4% you would be paying $1,479 each month for principal and interest. Refinancing the full amount at 2.69% will drop your payments to $1,351. That’s a $128 per month savings (the savings would probably be even greater since some of the loan would have been repaid and the next loan would be less than the full amount). But those getting a new loan will benefit just as much. As housing starts continue to increase, there will be more homes up for sale. Low interest rates encourage people to buy, helping to propel the economy forward.
The low interest rate environment will not be around forever. In fact, Fed Reserve Chairman Ben Bernanke indicated that the rates would stay low until unemployment comes down. This could be a year, it could be three. And if the 1980’s are any indication of what could happen, it is wise to lock in your loan rates now. If you have been considering a refinance of your home, or purchasing a new home and you have been waiting to see if interest rates will fall even further, now is a good time to lock in your rate. There is not too much more downward direction these loans can go.