by Christy Bieber | Sept. 11, 2020
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The interest rate on a 30-year fixed-rate mortgage has hit another new record low.
Freddie Mac has been tracking mortgage rates since 1971. This week, the average weekly mortgage rate on a 30-year fixed-rate loan fell lower than it has ever been since Freddie Mac started tracking them. For the week of Sept. 10, the average rate for a 30-year fixed-rate loan hit 2.86% on Freddie Mac's tracker. At the same time last year, it was 3.56%.
The Ascent also tracks daily mortgage rates, but although our metrics are a little different, our data has also shown the average rate on a 30-year fixed-rate loan has repeatedly fallen below 3.00% in recent weeks. A rate this low can make purchasing a home more affordable by significantly lowering your interest costs, which in turn helps to reduce your monthly payment.
If you're considering the purchase of a home, here's what you need to know about how these incredibly low rates could affect you.
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The week of Sept. 10 is not the first time mortgages have hit a new low. In fact, since March of 2020, there have been nine times that rates have beat their prior record and fallen to an unprecedented low level. The most recent record low was 2.88%, which was slightly above this week's average rate.
Homeowners hoping to score a rate at the absolute rock bottom may wonder how much further rates can fall. The answer is that it's impossible to predict whether rates will continue declining, but there is reason to suspect they'll most likely remain low for years.
Still, because there is a limit to how low rates can go and a risk to waiting, many homeowners will find it advantageous to lock in a rate soon, as any rate below 3.00% on a 30-year fixed-rate loan is an extremely competitive one.
When you secure a 30-year fixed-rate loan, your rate is guaranteed for the life of the loan. If you qualify for a loan at this week's rock-bottom rate, you will pay just 2.86% in annual interest for the entire time you are paying back what you've borrowed. Neither your rate nor your payment can ever change.
Since the cost to borrow is so low, interest costs over the life of your loan will be very affordable. Your loan is designed to be repaid over three decades, so your monthly payments are based on the amount of principal and interest necessary to meet that milestone. The lower the interest rate when you secure your loan, the less money is needed to cover interest costs, so the smaller your monthly payment will be.
If you take out a $200,000 mortgage at this week's average 30-year loan rate of 2.86%, for example, your monthly principal and interest payment would be just $828 and your total loan costs over the life of the loan would add up to $298,146. By contrast, a mortgage loan taken out a year ago at last year's weekly average rate of 3.56% would have had a principal and interest payment of $905 per month and your total loan costs would have been $325,728.
Although this week's average mortgage rate is lower than it has ever been before, individual borrowers are not necessarily guaranteed to qualify for a loan at such an unprecedented low rate.
The rate you will personally pay for your mortgage depends on many factors, including your credit score and other qualifying criteria. To make sure you have the best chance of qualifying for a loan at a rock-bottom rate, you should shop around and get quotes from at least three different mortgage lenders as rates and borrowing requirements can vary.
Making a large down payment and avoiding borrowing more than you can comfortably pay will also both help you to secure the best possible rate and ensure your mortgage is affordable for the life of the loan.
Chances are, interest rates won't stay put at multi-decade lows for much longer. That's why taking action today is crucial, whether you're wanting to refinance and cut your mortgage payment or you're ready to pull the trigger on a new home purchase.
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