Mortgage rates are currently low. Very low.
It’s common for well qualified buyers to get rates below 5%, and we’ve heard of some rates as low as 4.25% on 30-year fixed mortgages with no points. We even saw a sign by the road advertising a 3.99% rate, though it was not clear what the other terms would be.
Here’s a chart from Mortgage-X.com showing rates going back to 1963, which is further than other charts we’ve seen.
Reproduced with the permission of Mortgage-X.com
Our Thoughts on Low Mortgage Rates
1. People shouldn’t buy houses because mortgage rates are low. Buying a home is a big commitment of time and money, so homeowners need to be in it for the right reasons. Securing a low mortgage rate might be a nice bonus, but it should not be used to justify a purchase – you need to want to own a home.
2. Those in the market for a new home can take advantage of the low rates in different ways. One option is to pay less each month for the same home they would have bought no matter what the rates. Another option is to get a more expensive home for the same monthly payment they would have had before rates fell so low. Finally, they could get a shorter loan (15-years or 20-years instead of 30-years) so that they can build equity faster and pay dramatically less interest overall.
3. Existing home owners may want to consider refinancing their current mortgage. There have been a couple articles recently (CNN, Wall Street Journal) about how refinancings are on the rise again, but that many buyers can’t take advantage because of strict lending requirements (their credit is too poor) and appraisal values (their home values have fallen and they don’t have enough equity).
4. Will rates go even lower? Nobody knows. At some point mortgage rates really can’t go any lower. The two primary inputs into the rates are the interest rate of the 10-year Treasury Bond and the spread above the Treasury that lenders/investors demand. The 10-year Treasury finished yesterday at 2.64%, which is very low from a historical perspective, but it’s possible it could go even lower.
As always, the place to start with everything mortgage-related is with a mortgage professional. They’ll be able to evaluate your specific situation to let you know which options are available to you. We would be happy to pass on the names of mortgage people we’ve used if anyone is interested.
Do you happen to know if the majority of mortgage lenders require you to pay closing costs when you refinance?
We were looking to refinance the last time the rates dropped, but it seemed that the closing costs would negate our savings in the long-run.
I’m wondering if these closing cost requirements are being waived in any, many, or most instances. Do you happen to know?
Hello, Dawn, thanks for writing.
Mortgage companies do require you to pay all the closing costs, unfortunately. That’s the one trick to making sure that a refinance is worthwhile – there is an upfront cost to do the deal.
Every situation is different, but when I’ve run the numbers on our mortgage it has seemed like we need a 1% drop in the interest rate to make the refi attractive.
Best of luck with your research!
Thanks Kyle! I didn’t want to have to ask the question to a dozen different mortgage lenders just to hear the same answer: No waiving! So thanks very much for saving me the time. 🙂