If you thought you missed out on the ultralow mortgage rates of 2012-13, then I have good news for you: They're headed back down again. As of this week, the 30-year fixed-rate mortgage is at its lowest level in over a year and a half.
According to Freddie Mac's weekly survey of borrowing costs, the average rate on a conventional mortgage is currently 3.63%. The last time it was this low was in May of 2013 when it averaged 3.59%.
To say this has been a boon for the mortgage industry would be an understatement. In the first week of the year, mortgage applications surged on a seasonally adjusted basis by 49% compared to the prior week. On an unadjusted basis, they were up by 119%.
"While it's still early, the continued decline in rates could benefit origination volumes in the first quarter," noted Wells Fargo's CFO John Shrewsberry on the bank's latest earnings call. "We currently expect volumes to be relatively consistent with fourth-quarter levels, despite the fact that the first quarter usually reflects a slower purchase market."
Not surprisingly, much of the activity last quarter stemmed from existing homeowners locking in lower rates and thereby decreasing their monthly mortgage payments. As the Mortgage Bankers Association observed last week, "Applications for larger refinance loans increased more than four times relative to the previous week."
This is equally good news for people who want to buy a house. Let's assume, for example, that you apply for a $250,000 mortgage. Had you done so a year ago, your monthly interest payment would be $1,256. Fast forward to today's rates, and this falls to $1,140. That's a 9% drop. Over the course of a year, you would save roughly $1,400 in total interest payments.
That's not bad. And this is particularly so when you consider that the price of gas has fallen even further. According to the Energy Information Administration, the average U.S. household will save approximately $550 on gasoline cost this year. When you couple this with a drop in borrowing cost, you'd be excused for thinking that the typical consumer is in the best financial position in a decade.
My point is this: If you're on the fence about buying a house, then you might consider doing so. Rates may continue to head lower. Or they could go back up. But the one thing we know for sure is that the cost to borrow is near its historic low and it would be a shame if you didn't take advantage of that fact.