It’s certainly easy to get distracted at this time of year. It seems that once we hit Thanksgiving Week, the rest of the year is a blur. Travel, festivities, family get togethers. They are smashed together within a 30 day period. Certainly the main priority is to enjoy the holidays with family and friends along with time to reflect on what’s important in our lives and an eye toward the future. Mortgage rates are at record lows, so if you’re thinking of refinancing an existing mortgage or buying a new home, now is the time.
Each week, Freddie Mac surveys its list of mortgage lenders all across the country. Freddie representatives ask for rate information from all types of mortgage companies wanting to know what the company is currently quoting for a 30 year fixed rate, at 15 year and a 5/1 adjustable rate mortgage. Then, each Thursday, that data is released to the general public via its website. This survey is officially labeled by Freddie the Primary Mortgage Market Survey, sometimes referred to by the industry as the PMMS report. (Our mortgage rates will be lower than these Freddie averages at most any given time.)
Low Mortgage Rates and Refinancing
This very survey reported that the first release of 2020 showed a conforming 30 year fixed rate averaged 3.72%. That rate was in fact the high for the year so far. And while there were a few ups and downs during the past 11 months, the general trend has definitely been on the downward slope. In June, six months later, that same 30 year rate came in at 3.18%. That’s a rather remarkable fall from the initial rate of 3.72. Many thought that rates really couldn’t get much lower, but the latest mortgage rate survey released by Freddie Mac reported an average rate of 2.72%. Interestingly, that’s a full percentage drop in just 11 months.
Even though this piece today talks about interest rates, it’s important to note that just the difference between what your current rate is today compared to what is currently available, should be looked at a bit further. Over the years pundits have suggested that it’s wise to refinance if current rates are 2% below what you currently have or even 1%. But while rate comparison is just one part of the process it’s even more important to calculate what those rates actually represent.
Instead of the difference in rate, the difference in monthly payment should be looked at more closely. That’s what affects your pocketbook, not Freddie’s average. A 1.00% drop on a $500,000 mortgage is much, much different than a 1.00% drop on a $100,000 loan. When deciding whether on not it’s a good time to refinance, you and I should do this together. Don’t get too caught up with just the rate. Everyone’s individual circumstances will be different and what might be good for the goose it might not be good for the gander.
Considering a New Loan Term
And, if it’s been a while since you’ve taken out a mortgage, you should also consider the term of the new loan. If your current 30-year mortgage is say seven or eight years old, it may be better to look at 15 year term. In fact, I often recommend that strategy. If you refinance a 30 year loan that you’ve had for say eight years into a brand new 30 year term, you’ve essentially lost what you’ve paid so far. In essence, your 30 year loan is a 38 year loan.
Now, with a purchase transaction, it’s different. Sometimes consumers can get too caught up in the rate game that they wait to squeeze out just another fraction of a percent…even when rates are at or near record lows. That’s not a very good strategy. Mortgage lenders can tell you that rates can change on a dime and they move upwards a lot faster than they go down.
Mortgage rates can be affected by a variety of things that are simply out of our control. Political strategies can impact rates. If there’s the notion that the economy is going to slow down over the next few months compared to what we saw prior to the pandemic, rates will start to move up. If a purchase is in your picture, rates are at historic lows…don’t wait for the rate train to leave the station.