Current Mortgage Rates Below 4%
Mortgage rates are on a run.
In January 2014, the average 30-year fixed rate conventional mortgage rate was 4.52 percent. This week, the typical 30-year fixed rate interest rate for prime mortgage borrowers is closer to 3.75%.
Since the start of last year, 30-year interest rates are down approximately 75 basis points (0.75%).
This three-quarter-point decline is not the largest in recorded history, but it’s significant — especially with interest rates near their lowest levels of all time.
Sub-4 percent mortgage rates make it possible to refinance to lower rates and boost the purchasing power of today’s home buyers.
Meanwhile, for homeowners using an FHA loan or VA loan to finance a purchase, purchasing power is extended even more. FHA mortgage rates average approximately 0.125 percentage points less than rates for a comparable conventional loan; and VA mortgage rates averaging 0.250 percentage points less.
It’s an excellent time to buy or refinance a home. You can buy more home for less money.
Click to see today’s rates.
Buy “More Home” With Mortgage Rates Low
“How much home can I afford?”
It’s among the most common questions home buyers ask, and is starting point for nearly every home search in the land.
Knowing how much home you can afford sets boundaries for your home search while establishing a price range in which you can might set your search.
Yet, it’s an imperfect question. Here’s why.
When you ask your lender “How much home can I afford?”, you’re asking about your purchasing power and purchasing power is found using three distinct inputs — your income, your debts, and today’s mortgage rate.
Income and debt are fairly static from day-to-day, but mortgage rates are not.
Mortgage rates change daily and when mortgage rates move higher, purchasing power falls. Conversely, when mortgage rates move lower, purchasing power rises.
This is why “How much home can I afford?” is a flawed question — it’s because the answer changes daily. Purchasing power varies with the market.
With today’s mortgage rates below 4 percent and ultra-low, purchasing power is near its all-time best. A spike in interest rates could erase that in an instant.
Click to see today’s rates.
0.75% Rate Change = 10% Purchasing Power Change
Mortgage rates have been on a downward path since the start of 2014 and, for the last 7 months, rates have averaged less than four percent.
Falling mortgage rates make home payments more affordable. However, during the same period of time, U.S. home values have climbed. According to the Case-Shiller Index, annual home values are higher by approximately six percent since January 2014.
The good news, though, is that falling mortgage rates trump rising home values. This is because mortgage rates do more to influence home affordability and purchasing power than home prices do.
As an illustration, let’s assume a hypothetical first-time buyer in the Washington, D.C. area hoping to make just a small downpayment on a home.
In January 2014, the buyer was pre-approved for a maximum $180,000 home loan against a purchase price of $200,000 — a downpayment of 10 percent.
After an exhaustive search, the buyer failed to find a suitable property at a suitable price; and decided to “wait until next year” to see what was available.
Flash-forward to today.
Home values in the Washington, D.C. area are up by an average 2 percent from last year; and mortgage rates have dropped from 4.52% to near 3.75%. A $200,000 home from 2014 has appreciated to $204,000.
That four-thousand dollar increase is mostly irrelevant, though. At today’s mortgage rates, the same buyer can purchase a home for $220,000 home — an increase of 10%.
As mortgage rates drop, maximum purchase price climbs, offsetting a rise in home values.
Click to see today’s rates.
Low-Downpayment Mortgage Options
Home buyers have more to cheer than just falling mortgage rates — lenders are also making it easier to get mortgage-approved.
More purchase loans are getting approved than during any time this decade; and there is an abundance of low- and no-downpayment mortgage loans available to today’s buyers.
Among the most popular low-downpayment programs is the FHA loan, which allows for 3.5 downpayment on a property and gives access to very low rates.
The FHA recently reduced its mortgage insurance premiums (MIP), too, so with FHA mortgage rates lower than even conventional ones, the monthly carrying cost of an FHA loan has dropped to its lowest point in recorded history.
Another popular low-downpayment option is the newly-updated Conventional 97 program.
Via the Conventional 97, home buyers are required to make a downpayment of at least 3 percent; and may receive their downpayment from a relative in the form of a gift.
Mortgage rates are typically higher for a Conventional 97 loan as compared to the typical 30-year fixed via Fannie Mae or Freddie Mac. For some buyers, though, the program can be excellent.
Then, there are the no-downpayment options.
The most common no-money-down mortgage is the VA loan, which is available to U.S. veterans and those currently serving in active duty. VA loans offer 100% financing, with no annual mortgage insurance requirements and the lowest rates of all common loan types.
The other 100% financing program is the USDA loan.
USDA loans are available in rural and suburban neighborhoods and give home buyers access to below-market interest rates. USDA loans charge minimal mortgage insurance fees and are available as 30-year fixed rate loans only.
Many U.S. lenders offer all four loan types above.