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It's been an unbelievable year for mortgage rates, and the hits just keep on coming. On Dec. 3, Freddie Mac announced that the average interest rate on a 30-year fixed mortgage fell to 2.71%. That's the lowest level on record for nearly 50 years. The average 15-year fixed mortgage dropped to 2.26%.
To give these numbers some context, a $100,000, 30-year mortgage at 2.71% leaves you with a monthly payment of $406.23 for principal and interest. Meanwhile, a 15-year mortgage for the same amount at 2.26% gives you a monthly principal and interest payment of $655.36. Borrowers often pass on a 15-year mortgage because they can't swing the higher monthly payments that come with a shorter loan term. But since rates are so competitive, that may be more of a possibility now.
Should you rush to get a mortgage?
Today's mortgage rates are downright phenomenal. There's just one problem -- home prices have soared in the past few months. Low rates have created a surge in buyer demand, so if you buy a home now, what you save on a mortgage you might more than pay for with a higher asking price.
The other issue with buying a home today is that you may not get the home you want. Inventory on the housing market is so limited that you may find just a listing or two in your target neighborhood, whereas a year ago, you might've had dozens of properties to choose from. Buying a home today could mean settling for a property that's not ideal for your family, or that doesn't fit with your long-term plans. Or, it could mean buying a home that needs a lot of work, which will only add to your cost.
How long will mortgage rates stay this way?
Without a crystal ball, it's impossible to say exactly. But given the state of the economy, it's fair to assume that rates will remain low well into 2021 and quite possibly beyond. Will rates drop further? Maybe, or maybe not. But at the current level, exact numbers almost don't matter.
For example, the difference between a 2.71% interest rate on a 30-year, $100,000 loan and a 2.85% interest rate is $7.65 a month. Even if rates climb in 2021, it's unlikely they'll go from averaging 2.71% to 3.71% or higher anytime soon, and if you put off your home search for a few months, you may find that inventory opens up, making it easier to find an affordable home you like.
Delaying your mortgage application also gives you time to work on things like boosting your credit score and lowering your debt-to-income ratio. And doing so will make you a more desirable candidate for mortgage lenders, increasing your chances of snagging the best rates when you apply for your home loan.