Mortgage Interest Rates: 1 Big Reason to Buy a House Right Now

Low mortgage interest rates have made housing unusually affordable.

Aug 13, 2014 at 6:30PM


If you've been thinking about buying a house but are discouraged by rapidly inflating real-estate prices, then let me give you a reason to wait no more: Mortgage interest rates are still less than half the historical average.

Between 1971 and today, the average rate on a 30-year fixed-rate mortgage is 8.52%. Right now, according to Freddie Mac's primary mortgage market survey, it's at 4.14%.

Mortgage interest rates and home prices

I can't emphasize enough how significant this is. For instance, as I've discussed before, let's assume you purchase a $250,000 house with a 20% down payment and finance the rest with a 30-year fixed-rate mortgage.

At 4.15%, the total cost of the house (interest plus principal payments) is about $400,000. At 8.52%, by contrast, you'll end up paying a little more than $600,000.


My point is that mortgage interest rates matter as much as, if not more than, the actual cost of a house when all is said and done.

Mortgage interest rates and affordability

It's for this reason economists and housing-industry experts often refer to so-called "housing affordability," which factors in both interest rates and home prices to determine whether a typical American family can afford a median-priced home. And right now, at least from a historical standpoint, houses are still unusually affordable.

Since 1981, the National Association of Realtors' housing affordability index has averaged 124.8, meaning that a family with a median income has 24.8% more income than they need to afford a median-priced home. Today, the index is at 159.3!


Excepting the years immediately following the financial crisis, houses have never been as affordable as they are right now. And the reason is that mortgage interest rates are still ridiculously low.

Low mortgage interest rates won't last forever

This situation can't last, however. As you may recall, beginning last year, the Federal Reserve started to "taper" its monetary support for the economy.

What has happened since? Mortgage rates increased from 3.4% to 4.5% between the beginning and end of last year. And while they've since settled back down to the current 4.15%, they're ultimately bound to go higher.


Although it may not seem like it now, the economy will at some point improve in a substantive and sustainable way. And when it does, interest rates will respond in kind -- that is, they'll increase.

So, by lamenting the current trend in home prices, you may be missing the point that mortgage interest rates are the single most important variable when it comes to determining the total cost of homeownership.

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4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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