The Impact of COVID-19 on Mortgage Rates
The COVID-19 pandemic sent shockwaves through the global economy, and the housing market was certainly not immune. In an effort to stimulate economic growth and keep interest rates low, the Federal Reserve lowered its benchmark interest rate to near-zero. As a result, mortgage rates have reached historically low levels, with the 30-year fixed rate falling below 3% for the first time since Freddie Mac began tracking mortgage rates in 1971.Historical Mortgage Interest Rates in the US
Over the decades, mortgage interest rates in the US have fluctuated wildly, peaking at over 18% in the early 1980s and dropping to below 4% in the aftermath of the 2008 financial crisis. According to Freddie Mac, the average 30-year fixed mortgage rate for 2020 was 3.11%, down from 3.94% in 2019.Freddie Mac’s Role in Tracking Mortgage Rates
Freddie Mac is a government-sponsored enterprise that was created by Congress in 1970 to provide liquidity, stability, and affordability to the US housing market. One of its main functions is to track mortgage rates through its weekly Primary Mortgage Market Survey, which has become the industry standard for tracking interest rates. The survey collects data from more than 100 mortgage lenders across the country and is used by lenders, homeowners, and policymakers to make informed decisions about the housing market.Understanding the 30-Year Fixed Rate Mortgage
The 30-year fixed rate mortgage is the most popular type of mortgage in the US, accounting for almost 90% of all home loans. As the name suggests, it has a fixed interest rate that remains constant for 30 years, which provides borrowers with predictable monthly payments and protects them against rising interest rates. The downside of a fixed-rate mortgage is that borrowers may end up paying more in interest over the life of the loan than they would with an adjustable-rate mortgage.Factors That Affect Mortgage Interest Rates
Mortgage interest rates are influenced by a variety of factors, including:- The overall state of the economy and the stock market
- The Federal Reserve’s monetary policy and benchmark interest rates
- Inflation and the Consumer Price Index (CPI)
- The creditworthiness of the borrower (as determined by their credit score, debt-to-income ratio, and other factors)
- The loan-to-value ratio (how much the borrower is borrowing relative to the value of the property)
How to Qualify for the Lowest Mortgage Rates
To qualify for the lowest mortgage rates, borrowers typically need to have a high credit score (often 700 or above), a low debt-to-income ratio (usually less than 43%), and a steady source of income. Additionally, borrowers may be able to secure a lower interest rate by making a larger down payment, opting for a shorter loan term, or choosing a fixed-rate mortgage over an adjustable-rate mortgage.Pros and Cons of Refinancing During Record Low Mortgage Rates
With interest rates at historic lows, many homeowners are considering refinancing their existing mortgages to take advantage of lower rates and potentially save money on their monthly payments. However, there are pros and cons to refinancing, and it is important to carefully weigh the costs and benefits before making a decision. Pros:- Lower monthly payments
- Shorter loan terms
- Reduced interest payments over the life of the loan
- Opportunity to cash out equity for home improvements or other expenses
- Closing costs can add up to several thousand dollars
- Extended loan terms may result in higher total interest payments over time
- Refinancing may reset the clock on your mortgage, delaying the payoff date