Homebuyers and homeowners looking to refinance have been pushed into a whale of a dilemma. While one industry report shows that homeownership is quickly sliding into “unaffordable territory” in much of the U.S., mortgage rates are the most affordable they’ve been in 30 years.
According to the just-released Primary Mortgage Market Survey by Freddie Mac, the 30-year fixed-rate mortgage is at an average of 2.65 percent, the lowest rate in the survey’s history, which dates back to 1971.
“A new year, a new record low mortgage rate. Despite a full percentage point decline in rates over the past year, housing affordability has decreased because these low rates have been offset by rising home prices,” said Sam Khater, Freddie Mac’s Chief Economist, commenting on the conundrum.
Overall savings are impressive
Freddie Mac’s survey found some interesting comparative tidbits about the shift in mortgage rates. As an example, a 30-year fixed-rate mortgage averaged 2.65 percent with an average 0.7 points for the week ending January 7, 2021, which is down from last week when it averaged 2.67 percent.
A year ago at this time, the 30-year FRM averaged 3.64 percent. On a $300,000 mortgage, that’s a difference of more than $150 a month -- $1,209/mo. now vs. $1,371/mo. a year ago. But the real savings is in the overall out-of-pocket cost. All told, the total cost of the mortgage on the new rate would be $435,201 vs. $493,448 on last year’s rate.
For those who can swing a larger monthly payment, a 15-year fixed-rate mortgage averaged 2.16 percent with an average 0.6 points, down slightly from last week when it averaged 2.17 percent. A year ago at this time, the 15-year FRM averaged 3.07 percent. On a $300,000 mortgage, that equates to $1,953/mo. now vs. $2,082/mo. a year ago.
More impressive is the savings on the total cost of a 15-year mortgage, dropping close to $100,000 from a 30-year note at $351,487 now vs. $374,735 with the mortgage rate a year ago.
A 5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 2.75 percent with an average 0.3 points, up a smidge from last week when it averaged 2.71 percent. A year ago at this time, the 5-year ARM averaged 3.30 percent.
You’ll need good credit and 20 percent down
While the Freddie Mac survey sounds like a no-lose proposition, the truth is that to get rates like the ones listed, the survey focuses on conventional, conforming, fully amortizing home purchase loans for borrowers who put 20 percent down and have excellent credit. Freddie Mac also noted that borrowers may still pay closing costs that are not included in the survey.
If a consumer is going to act on these favorable rates, Khater says they better do it now.
“The forces behind the drop in rates have been shifting over the last few months, and rates are poised to rise modestly this year. The combination of rising mortgage rates and increasing home prices will accelerate the decline in affordability and further squeeze potential homebuyers during the spring home sales season,” he said.