Mortgage interest rates began to inch upward in 2016, but as of mid-year 2017, rates have begun to fall again.
By June 1, 2017, the 30 year mortgage rate dropped to 3.95%, which is a new low for the year. Below are some more specifics that may mean great news for many home shoppers:
- 30-year fixed mortgages were averaging 3.95% for the week that ended on May 25. It was down from 4.02% the week before. A year ago, the rate on a 30 year note was 3.64%.
- The 15 year fixed rate mortgage averaged 3.19%, with a year ago it was 2.89%.
With the lower interest rates, there have been signs that more buyers are jumping into the market. MSNBC reported in April that total mortgage application volume increased by 1.5% in late April based upon activity from the previous week. Volume for new mortgage applications was 20% lower a year ago at the same time.
It is unclear if interest rates will continue to follow for the balance for 2017, but if they remain this low or drop more, there could be many benefits for the housing market:
#1 You Have More Purchasing Power
Most home buyers like lower mortgage rates because they will pay a lower amount on their monthly payment. You will be able to pay less on your mortgage, and you also can buy more home if you choose. A lower mortgage rate is going to put a larger and more expensive home within reach, if you choose to pull the trigger.
Here is an example: a reduction of 50 basis points in interest rates can reduce your payment by almost $50 on a $100,000 home. You could easily save more than $200 on a house between $200,000 and $300,000. That is real money to a lot of Americans.
#2 Income to Qualify Is Reduced
If you are on the border line of being able to qualify for a loan for your dream home, you want to see rates fall. If there is a mortgage rate reduction of 50 basis points, this can cut the income requirement for the home by $1000 or more.
Home buyers who are able to qualify on a lower income is good for the American housing market. The more people who buy homes, who can truly afford them, the better it is generally for the US economy. More people buying homes means fewer people renting. Time and history shows that a community of home owners is better than a community of renters in terms of home and neighborhood upkeep and property values.
#3 Lower Interest Rate Reduces Down Payment Requirement
It keeps getting better for potential home buyers if rates decline significantly. A 50 basis point reduction in interest rates will cause a $2500 reduction in the down payment, if you put down 20%.
Being able to put less money down is a major help to most Americans. Rather than having to scrounge together as much money as possible, being able to put less down could mean you have more money to fix the house in ways that you want.
#4 Save Thousands in Interest Payments
Everyone likes to save $100 or $200 per month or more on their monthly mortgage payment with lower interest rates. But it is easy to lose sight of the big picture: Lower mortgage interest rates will cause your long term interest payments to be reduced by tens of thousands of dollars over 30 years.
For example, let’s say that your interest rate on a $340,000 home is 5%. Your total payment with 20% down is approximately $1474 in principle and interest.
If rates drop by 1% to 4%, you can save approximately $160 per month off of your mortgage payment. But that is just the beginning of the savings. In a year, you will save nearly $2,000, which could buy you a new computer.
The savings in five years could be nearly $10,000, which could pay for renovating the kitchen. After 10 years, savings add up to $20,000, which pays for a new car. And after 30 years, you might save nearly $60,000 in interest payments. That could pay for an investment property that pays you $500 per month in cash flow or more.
Low mortgage interest rates are a great help to people who want to buy a home. You can save more on your monthly mortgage payment, put down less money, qualify on a lower income, and save majorly over the life of your loan.
Rates as of mid-2017 are excellent, especially when you consider they have fallen by approximately ½ a point since the end of 2016. Now is really a great time to get into a new home, as there is a good chance mortgage interest rates will be rising in the next two years.