How to Lock in Mortgage Rates While They're at Record Lows
If you are looking to buy a property, one of the most important things you need to think about is mortgage rates. Just a one percent difference in interest saves people an average of about $60,000 over the life of their loan. Therefore, right now might be a great time to buy a house. Keep reading to find out everything you need to know about getting a super low mortgage rate!
Mortgage Rates Hit A Record Low
For several years, the average mortgage rate has fluctuated around the four to five percent mark. However, with the COVID-19 pandemic, the housing market has undergone some major changes. Though house prices remain relatively steady, the number of interested buyers and sellers has dropped.
Lenders have responded to the decreased amount of customers by dropping their mortgage rates. Freddie Mac, one of main mortgage-finance companies in the industry, reports that the average rate for a 30 year fixed rate mortgage is now 3.13 percent. Compared to the five percent mortgage rates of a few years ago, this is a major decline.
Buying a home now could end up saving you thousands of dollars in interest over the years! It would also mean that your monthly mortgage payment would be way lower.
Will Mortgage Rates Drop Further?
Federal Reserve Bank economist, William R. Emmons, predicts a further drop by 0.5 percentage points. He points to the 10-year U.S. Treasury bond rates, which can often be used to predict mortgage rate adjustments. As demands for refinancing increase, historical patterns indicate that mortgage rates should keep dropping.
Getting A Low Mortgage Is Harder Than You Think
This might sound like good news, but it doesn't mean anyone can just stroll into a bank and walk out with a favorable mortgage. Chief economist for Fannie Mae, Doug Duncan, reports that most lenders are actually tightening their standards. People who want to qualify for a loan need great credit and a decent down payment saved up.
Banks are being stricter due to all the economic uncertainty. When loaning is a higher risk, they have more standards about who they will give a loan to. This does not necessarily mean you can only get a loan if you have thousands of dollars saved up, a steady job, and stellar credit. You just might need to take a few extra steps to get the loan you want.
How to Find The Best Deal
An important thing to remember is that each lender can offer whatever interest rates they feel like. Most companies have fairly similar rates, but there can still be a significant percentage between your options.
If you want the benefit of record low rates, you have to be willing to shop around. For those who do not want to do all the legwork themselves, a mortgage broker may be a good option. They can provide you with multiple quotes, so you can pick the best one.
When comparing loans, it is important to look at the loan term. A shorter loan term means less time spent paying interest. If you are willing to have a higher monthly payment, it will save you money in the long term. Something else to consider is the type of loan. For some, an adjustable rate mortgage may be a decent choice.
Convincing Lenders to Lend to You Now
Your best option is to have a steady job and save up enough to get a down payment of 20 percent. However, if you want to lock in a low mortgage rate, you might not have a lot of time for saving. Fortunately, there are other options.
If possible, go with a shorter loan term. This is less risky for banks, so they are more likely to sign off on your loan. Another important thing to do is make sure your credit is in order. If your credit is on the low side, order a full credit report and go over it closely. You may have errors or forgotten debt that are dragging it down.
Another way of locking in the lower rate is by going with a more affordable home. If a lender will not approve you for a high loan, they may be willing to go ahead and lend you enough for a smaller home. This can be a good way to go ahead and build equity now.
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