For pretty much as long as I’ve been a Realtor, which is since 2004, all I’ve ever heard is how unbelievably low interest rates are. “Historic lows!” “Never been this low before!” “Buy now or risk sharp increases!” And while it is true that they were indeed at historic lows, no one was really anticipating the impending financial meltdown and foreclosure crisis that has dragged the housing market down over the past three years or so. And with those factors, though it’s hard to believe, interest rates have continued to come down even further, to the point where it hasn’t been this cheap to borrow money for a mortgage in over 50 years!
As the Federal Reserve continues its efforts to prop up a still-sagging economy, qualified buyers are finding interest rates as low as four percent on a 30-year fixed mortgage. While these historically low interest rates are unfortunately a symptom of the weakness of the U.S. and global economies, it does represent a huge opportunity for potential homebuyers (and current mortgage holders looking to refinance). If you’re on the fence, now might be the time to come on over to the buying side!
What makes this a great time to buy is the rare combination of low prices and low interest rates. Often, you find one but not the other. If prices are extremely low, it’s because interest rates are high, and vice versa. Not now, though. At present, it’s the best of both worlds. As of this column, 30-year fixed rates are hovering at around four percent, while FHA loans (which only require a 3.5 percent down payment) are about 3.75 percent for 30 years fixed.
The U.S. Department of Housing & Urban Development (HUD) and the U.S. Department of the Treasury have jointly released the second edition of the Administration’s Housing Scorecard, showing that, thanks in part to interest rates continuing at all-time lows, home affordability in the U.S. remains near the most attractive levels in 10 years.
“U.S. home affordability is at its highest level in more than 40 years, according to a new assessment from Beacon Economics” according to Dana Dukelow of Surety Financial. “The average U.S. family would need to pay only 16.9 percent of its monthly income to make mortgage payments on an average-sized home, according to the August Beacon Economics Home Affordability Index. The index is based on purchase price, mortgage rates and assumes a 20 percent down payment. That makes housing the most affordable it has been since at least 1969, when the data the index is based on first became available. The index is down two-tenths of a percentage point from July’s reading of 17.1 percent.”
Why are low interest rates good? Because low interest rates promote home affordability. Since April of 2009, record low rates have helped more than 7.2 million homeowners to refinance, resulting in more stable home prices and $12.9 billion in total borrower savings, according to information provided by Dukelow. For a more clear understanding, here’s what you need to know. Most of the time when you take a 30-year fixed mortgage, a large part (sometimes almost all) of your monthly payment is comprised of the interest on your loan, with only a very small percentage going towards paying down the balance (this trend reverses over the life of the loan, however). Thus, anything you can do to get your interest rate down is going to have a very real, tangible effect on your out-of-pocket costs every month. You will feel a difference in your bank account.
In addition to being a great time for buyers, now is also a great time to investigate refinancing as well, if you have some equity in your home. With as much value as homeowners have lost over the past few years, this can be a tough one. But if you have built up equity and have your credit still intact after the craziness of the last few years, this is a great opportunity to get your interest rate down.
Refinancing mortgages at lower rates will hopefully help stimulate the economy by putting more money into the pockets of homeowners. Lowering the rate on a $600,000 30-year fixed mortgage from six percent to four percent would save a family approximately $8,800 a year. That ain’t pocket change!
So if you’ve been teetering on the edge of making the leap into home ownership, know that right now you could be getting the lowest interest rate anyone’s seen since 1950. Give me a call or shoot me an email if you want more information or would like to set up a free consultation. If you think you’re interested in refinancing, feel free to call Dana Dukelow at Surety Financial to find out if you qualify. Dana can be reached at (310) 676-6666.
Jefferson Hendrick is an L.A.-based Realtor with Keller Williams. Contact him with questions, concerns and real estate inquiries at [email protected] or facebook.com/jeffersonhendrickrealtor.