Mortgage Rates Hit Yet Another Record Low

Just when you thought mortgage rates couldn't get lower...here we are.

The lower your mortgage rate, the less money your home will cost you. And if you're searching for a mortgage these days, you're in luck, because rates seem to be going nowhere but down. In fact, on August 6, mortgage rates actually hit a record low: 2.88% for a 30-year fixed home loan, and 2.44% for a 15-year fixed loan. And that's reason enough to consider locking in a mortgage today, or refinancing your existing mortgage.

What might your housing payments look like at today's rates?

The amount you'll spend each month on a mortgage will depend on your loan amount, your interest rate, and other factors, including:

• Whether your mortgage payment includes your property taxes and homeowners insurance (in some cases, you pay these yourself, but in others, you pay your mortgage lender extra and your lender makes those payments on your behalf)
• Whether you're subject to private mortgage insurance, which normally comes into play when you don't put down at least 20% of your home's purchase

But let's assume you're looking to take out a $200,000 home loan and your monthly payments will cover the principal and interest payments only. In that case, here's what you'd be on the hook for each month:

• $1,389 for a 30-year loan at 2.88%
• $1,886 for a 15-year loan at 2.44%

With a 30-year mortgage, you'll pay less each month than you will with a 15-year loan. But with a 15-loan, you'll be debt-free sooner, and you'll also pay a lot less interest over the life of your loan. As such, it pays to see what your budget allows for, because if you can swing a 15-year mortgage, you'll reap major savings on interest. 

What about refinancing?

If you already have a mortgage but your current interest rate is at least a full percentage point higher than today's rate, then it pays to look into refinancing. Keep in mind, though, that just as you paid closing costs on your original mortgage, so too will closing costs apply when you refinance, so you'll just need to make sure you plan to stay in your home long enough to come out ahead. For example, if refinancing costs you $4,000 up front but saves you $200 a month, it will take you 20 months to break even, so it only pays to refinance if you think you'll stay put longer than that. 

Will you qualify for today's historically low mortgage rates?

Just because the average rate for a 30-year mortgage has fallen to 2.88% and the average 15-year loan has dropped to 2.44% doesn't mean that you'll qualify for these rates. Typically, top mortgage rates are reserved for applicants who can fulfill these criteria:

• Have strong credit scores
• Have a low debt-to-income ratio
• Have a 20% down payment
• Have a steady income

But it could still pay to apply for a mortgage if your credit is good but not excellent. That's because while you may not be eligible for the above rates, you might still snag a lower rate than you normally would. 

It also makes sense to shop around with different mortgage lenders, whether you're looking to lock in an original mortgage or refinance a current home loan. One lender might give you a lower rate than another based on your credit score and other factors, so rounding up a bunch of offers is a good way to capitalize on the great deals available to borrowers today.