Mortgage rates are low, in fact, they have never been lower. In the past few months, interest rates on 30-year mortgages have hit all-time lows on multiple occasions.
As of October 22, the average rate is clocking in at just 2.8%. That’s down from an average 3.94% rate in 2019 and 4.54% in 2018. A decade before that? Rates were over 6%.
For homebuyers, those drops can translate to serious benefits and financial savings. (There are also some drawbacks, but we’ll get to that later).
Are you considering buying a home in today’s market? Here’s what record mortgage rates could mean for you:
Low mortgage rates mean a lower mortgage payment.
Most notably, low mortgage rates can give you a lower monthly payment than you’d typically see when purchasing a home. Here’s an example: Taking out a $200,000 mortgage loan at a 2.87% interest rate would run you around $829 per month (without taking into account taxes and homeowners insurance).
On a loan with 2018’s average rate of 4.54%? You’d pay $1,018 per month — almost $200 more.
Less paid in interest over time.
Lower mortgage rates also mean fewer interest costs over time. In that above example, a 2.87% rate would mean paying $98,530 in total interest over the course of a 30-year loan term. With 2018’s rate, your interest would clock in nearly $68,000 higher.
Bigger home-buying budget.
When mortgage rates drop, you get more for your money. Let’s say you currently have a rent of $1,200 per month, and you know you need to keep your mortgage payment around there in order to afford a house.
With today’s rate, you could get a $290,000 mortgage loan with that same $1,200 payment. Back in 2018, you could only afford about $235,000. That extra $55,000 could equal an extra bedroom, a better neighborhood or just more space.
The caveats
It’s not all perks, though. Lower mortgage rates typically mean more competition, too. As more buyers come out of the woodwork, you might face more bidding wars and higher home prices as a result.
If you do buy during this time, make sure you lock your interest rate to prevent it from rising before you close. Most rate locks last between 30 and 60 days, though you may be able to get a longer one if your lender is really backed up.
