Mortgage rates this low have not been seen in almost 50 years, prompting both sellers and buyers to take advantage of record-level savings on their mortgage. According to Freddie Mac, the average 30-year fixed-rate mortgage hit a record 3.29 percent this past week, which is the lowest level in its nearly 50-year history.
Mortgage applications, meanwhile, increased 10 percent last week from one year ago and show no signs of slowing. To put this record rate into perspective, 3.29 percent even dips below levels seen during the housing crisis. The average 30-year fixed-rate mortgage dropped to 3.31 percent in 2012. At present, 15-year fixed-rate mortgages averaged 2.79 percent and five-year adjustable-rate mortgages 3.18 percent.
This news comes in the wake of the Federal Reserve’s recent decision to slash short-term federal interest rates by 50 basis points to steady markets rocked by coronavirus fears. (A basis point, which is used to describe a change in percentage, is the equivalent of 0.01 percent.)
Related: Busting 4 of the Top Mortgage Myths
What record-low rates could mean for mortgage borrowers
Record-low mortgage rates are the Black Friday sale of housing—after all, even a one-tenth of a percentage point rate difference can amount to thousands of dollars saved during the life of a 30-year loan. If you have a mortgage rate in the 4-plus percent range, it could make sense to refinance.
That being said, the rate cut has more of an impact on home equity lending, where homeowners can borrow inexpensively to do a home-improvement project or use the equity to pay off credit cards or a car loan.
Will low mortgage rates also attract homebuyers?
Homeowners aren’t the only ones who might be drawn out of the house to survey their options. Low mortgage rates also could lure more home buyers. It could take a little longer to draw people off the sidelines, but that should happen by the time the traditional buying season kicks off in a few months.
Buyers who dive into home shopping now, however, will reap the most gains. While rates are low now, they could reverse in the spring or late summer if the virus results in such an economic slowing that job layoffs occur. In addition, the big problem for housing has been a lack of supply rather than a lack of demand. So, as lower rates stimulate even more demand, prices are likely to rise.
Lack of inventory aside, might fear of the COVID-19 virus keep home buyers from heading out?
Unless the virus becomes a real issue in certain communities, it likely won’t affect home buyers. People may avoid an open house, but home buying is not like attending a large sporting event, going on a cruise or sitting on a plane where you are in close contact with a large number of people in a relatively small amount of space.
How long will mortgage rates remain low?
Experts predict that these bargain-basement mortgage rates won’t linger for long and could be extracted when the virus abates during the late spring or summer. That means if you’re considering buying or selling in the next 12 to 24 months, you should adjust that timeline to the next seven to eight months. The potential savings on a 30-year mortgage now versus a higher rate make this worth considering breaking a lease, postponing a vacation or moving up plans.
Note: You shouldn’t buy—or refinance—without thoroughly considering your personal circumstances. If you’re a homeowner, check a refinance calculator to see if it really makes sense to refinance now. While you might save money on interest, refinancing entails closing costs that can run in the thousands.
Calculate what it costs to refinance and what you’d save monthly, and then determine how many months it will take to earn back what you invested in the refinance. If that number is low, and you intend to own that home longer than the return time period, it may be worth doing.
