March 26th, 2020 12:28 PM by Jackie A. Graves, President
housing market is about to enter the spring selling season, and mortgage rates are near record lows.
With rates slipping over the past year, and especially over the past few
months, it may be a fine time to lock in your
mortgage rate and forget about getting the rock-bottom rate.
potential buyers sitting on the sidelines waiting for a better rate may want to
reconsider. Their buying power has seldom been higher, especially if you
compare where rates are to recent economic booms in 1999-2000 and 2006-2007.
The all-time low for rates
rates on 30-year mortgages are now at 3.7 percent, according to Bankrate’s
weekly survey of the nation’s largest lenders. Would-be borrowers
might consider whether rates can fall much further. The all-time low for the
benchmark 30-year is 3.5 percent, achieved on Dec. 5, 2012, according to
many economists expect the Federal Reserve to keep interest
rates steady, holding off one key source of the downward pressure on
rates. However, potential short-term concerns that may hit global growth, such as the
coronavirus, may push rates lower.
regardless of where rates go from here, they’re already only a smidge higher
than the lowest we’ve seen for some time.
substantial drop in mortgage rates compared to last year has put more buying
power behind would-be buyers, though the continued appreciation of home prices
in many markets does dilute the savings,” says Greg McBride, CFA, Bankrate
chief financial analyst.
Buying power remains high
decline in rates, consumers’ buying power continues to increase, and the
ability to lock in long-term financing may prove too attractive for many to
resist, even with higher home prices.
$250,000 at 3.5 percent now costs $144 less per month than at 4.5 percent one
year ago, but 5 percent home price appreciation means borrowing $262,500 now,”
McBride says. “The payment is still $88 per month lower at today’s rates than
the smaller loan at last year’s higher rates.”
are already well below what occurred in recent economic booms. In 2000, rates
on 30-year mortgages topped out at 8.69 percent on May 17, 2000, according to
Bankrate data. In the last boom, rates topped at 6.93 percent on June 28, 2006.
So historically, consumers are already seeing incredibly low rates.
decline in rates has drastically affected the ability to afford a house at a
given price. For an income of $100,000 and a lender that requires mortgage
payments to be no more than 28 percent of your income, here’s the buying power
and the interest paid over the life of the loan.
3.64 percent (2020)
6.93 percent (2006)
8.69 percent (2000)
income, you’ll be able to afford a mortgage of $510,692, according to Bankrate’s maximum mortgage calculator. Factor
in a 20 percent down payment, and you could buy a property valued at $638,365.
Interest payments total $329,307 over the life of the loan.
2006 boom, when 30-year rates hit 6.93 percent, that same salary would have
afforded a mortgage of $353,210 and a property of $441,512, assuming the same
20 percent down payment. Interest payments would come to $486,789 over the life
of the loan.
2000 boom, with rates maxing 8.69 percent, that $100,000 salary could get you a
mortgage of $298,220 and a property of $372,775. Total interest payments would
come to $541,779.
the decline in rates, consumers’ buying power has been rising substantially and
the amount going to interest expenses has been declining markedly. And despite
much higher property values, the amount of interest actually declines sharply.
Focus on price, then find a great rate
course, consumers shouldn’t buy a house just because rates are good. Rather,
they should find a house that they want to own, negotiate hard for the price
they want and only then use the market to lock in the rate they want.
you lock in a rate now and rates fall further during a recession, you may be
able to refinance at that time, taking advantage of the even more favorable
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