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Mortgage rates have dropped consistently in recent months, and now, they've reached a new record low -- the 15th this year, in fact. The average rate for a 30-year fixed mortgage fell to 2.67%, down from 2.71% last week, according to Freddie Mac. That's the lowest rate on record in almost 50 years.
Here's what this means in practice. If you were to take out a $100,000, 30-year fixed mortgage at 2.67%, you'd be looking at a monthly payment of $403.70 for principal and interest. Now that doesn't mean that's all you'd pay each month. You'd still be liable for property taxes, homeowners insurance, and, in some cases, private mortgage insurance, and homeowners association fees. But an interest rate of 2.67% could make a mortgage extremely affordable. The question is -- should you rush to get one?
The pros and cons of buying in today's market
The upside of getting a mortgage today is clear -- you can lock in a historically low rate on your loan and pay less interest as a result. The downside, however, is an extremely tight housing market without much inventory. The result? Home prices have skyrocketed. Even though you might reap savings via a low mortgage rate, you'll likely pay more for a home.
What's equally problematic is that limited housing inventory means you may not be able to find a home that's really suited to you. The result? You have to settle for less square footage or compromise on certain features.
Will mortgage rates stay this low into 2021?
There's a good chance they will. Our economic recovery still has a long way to go, so rates will likely stay competitive. That doesn't mean they won't fluctuate slightly. But for the most part, you should not race into a mortgage for fear of missing out on a great rate. This holds especially true if you're not finding homes you want to buy in your target neighborhood.
There's a good chance housing inventory will open up in 2021 as things (hopefully) improve on the pandemic front with the widespread rollout of vaccines. And once that happens, prices should start to come down. Even if prices don't come down, a wider selection will reduce your chances of having to settle for a home that needs a lot of improvements, which can be costly. Either way, there's much to be gained by sitting tight and seeing how things unfold.
Finally, today's top mortgage rates will only go to borrowers with excellent credit scores. If your score isn't in the mid-700s or above, you may want to work on boosting it so you're eligible for a great rate when you do apply. You can improve your credit by paying incoming bills on time, eliminating some existing debt, and checking your credit reports for errors. In fact, delaying your mortgage application a bit will give you time to work on your credit. That's yet another reason to wait -- despite the fact mortgage rates just reached yet another record low.
