by Maurie Backman | Updated July 19, 2021 - First published on Aug. 5, 2020
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Mortgage rates are more competitive than ever. Should you try to buy now, or wait?
The lower the mortgage rate you manage to lock in, the more affordable your home will be for many, many years. And right now, mortgage rates are extremely competitive. On August 2, the average rate for a 30-year fixed mortgage was 3.12%. For a 15-year fixed mortgage, it was 2.77%.
Granted, these aren't the lowest rates we've seen recently. In mid-July, the 30-year fixed mortgage actually dropped below 3% for the first time ever. But historically speaking, today's rates are still very competitive. Therefore, it begs the question: Should you buy a new home today? Or does it pay to wait?
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Today's mortgage rates are quite favorable for buyers, and that's the primary reason it pays to purchase a home in the current climate. If you take out a 30-year fixed $200,000 mortgage at 3.12%, your monthly payment will be $1,415, and you'll pay a total of $108,283 in interest over the life of your loan.
Now that may seem like a lot, but consider this: Back in May, the average rate for a 30-year fixed mortgage was 3.63% -- also competitive, but not as low as 3.12%. With that mortgage rate on a $200,000 loan, you'd be looking at a monthly payment of $1,471 and a total of $128,644 in interest over the life of your loan. That's a big difference, and it's also why it could pay to buy a home now.
Mortgage rates may be low, but there are a few reasons why now may not be the best time to purchase a new home. First, we're still in the midst of the COVID-19 pandemic, so the once-simple act of going out to see homes in person is more complicated. There are health implications to consider, and attending open houses may not be the wisest choice if you have pre-existing conditions that put you at risk of COVID-19 complications.
Secondly, our economy is in a recession, which means there's a higher likelihood of jobs being lost. If you're at all worried about your employment status, you should consider holding off on buying a home. The last thing you want is to purchase a place of your own only to immediately start falling behind on your mortgage payments if a layoff strikes.
Finally, mortgage rates may be low right now, but home prices aren't. Home prices rose 3.5% from June 2019 through June 2020, reports the National Association of Realtors, and the median home price is now at $295,300, compared to $285,400 a year earlier.
The reason? It boils down to a lack of inventory. Since fewer sellers are listing their homes at the moment, buyers are being forced to pay top dollar to capitalize on today's mortgage rates. In fact, almost 54% of home sales this past June were subject to bidding wars. And if you're not familiar with what those are, it's when buyers have to compete with one another to get an offer accepted on a home, usually by going well above a home's asking price.
If you're in good shape financially -- you have a solid credit score, a steady job, and a healthy level of savings -- then now may be a good time to buy a home. Even that property costs you more than it normally would, you might save enough with a low mortgage rate to compensate.
But if you're going to go this route, make sure the mortgage rate you lock in is competitive enough to make paying a higher price for your home worth your while. A good bet, in fact, is to shop around with different mortgage lenders before committing to a home loan. That way you'll see what offers you qualify for and will be in a good position to really capitalize on today's low rates.
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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