Borrowing money to fund the purchase or refinance of a home this autumn may never again be this affordable, experts say.
26-Oct-20 On October 22, home loan interest rates plummeted to a new historic record low of 2.8 percent nationwide for 30-year fixed-rate loans, the lowest ever recorded by Freddie Macs Primary Mortgage Market Survey, which dates back to 1971.
Mortgage rates today are on average more than one full percentage point lower than rates over the last five years, noted Sam Khater, Freddie Macs Chief Economist. This means that most low-and-moderate-income borrowers who purchased during the last few years stand to benefit by exploring refinancing to lower their monthly payment.
The interest rate low also means Chicago home buyers now may have a once-in-a-lifetime opportunity to lock in the lowest mortgage interest in 50 years, assuming they have a good job, down payment cash, and a solid credit score.
Average benchmark 30-year fixed-rate mortgages fell to 2.8 percent for the week ending October 22, down from 2.81 percent a week earlier. A year ago, the 30-year fixed-rate loan average was 3.75 percent.
Fifteen-year fixed loans averaged 2.33 percent on October 22, down from 2.35 percent a week earlier. A year ago, 15-year fixed loans averaged 3.18 percent.
The comprehensive Freddie Mac survey focuses on conventional, conforming, fully-amortizing home-purchase loans for borrowers who place down payments of 20 percent and have excellent credit.
On October 23, Mutual of Omaha Mortgage was quoting a rock bottom 2.843 percent on 30-year fixed rate loans, and 2.625 percent on 15-year fixed rate loans, reported RateSeeker.
Under an aggressive loan program involving pledged money market funds, Huntington Bank was quoting 2.2 percent on a seven-year jumbo adjustable-rate mortgage (ARM) with 25 percent down payment, according to mortgage broker Brian Bockholdt.
Before 2020s sharp dip in interest charges, mortgage rates last reached a historical rock bottom on November 21, 2012, when the 30-year fixed mortgage average hit 3.31 percent, according to Freddie Macs archives.
Then came 2020, the year of the COVID-19 pandemic. On July 16, 2020, home loan interest rates nationwide skidded to 2.98 percent what was then a historic record low. It was the first time in 50 years that home loan rates fell below 3 percent, reported Freddie Mac.
Since then, rates have held below 3 percent for benchmark 30-year-fixed home loans. On August 27, 2020, the rate averaged 2.91 percent, down from 2.99 percent a week earlier.
To support the economy during the pandemic, the Federal Reserve said it plans to keep interest rates near zero even if inflation exceeds its two percent level.
What this means is borrowing rates for home mortgages, auto loans, and business loans likely will remain ultra-low for years to come.
Mortgage rate history
Archives of the now-defunct Federal Housing Finance Board show long-term mortgage rates in the 1960s were not much higher than the Great Depression, when lenders were charging five percent on five-year balloon loans.
Five decades ago, between 1963 and 1965, you could get a mortgage at 5.81 to 5.94 percent. Between 1971 and 1977, the now-defunct Illinois Usury Law held rates in the 7.6 to 9 percent range.
In the early 1980s, runaway inflation caused home loan rates to skyrocket over the moon. According to Freddie Mac, benchmark 30-year mortgage rates peaked at a jaw-dropping 18.45 percent in October 1981 during that Great Recession.
(Right) Tyne Daly and Loretta Swit on the cover of the October 1981 issue of Ms. magazine.
Rates finally fell below 10 percent in April 1986 and then bounced in the 9-to-10 percent range during the balance of the 1980s. 21 years ago in August 1999, when many of todays Millennial borrowers were in grammar school lenders were quoting 8.15 percent on a 30-year fixed mortgage. Back then, that seemed like a good deal.
However, interest rates began falling gradually over the last decade, sliding to 3.31 percent on a 30-year fixed mortgage in November 2012.
Then came 2020, which likely will go down in the American housing history book as the Year of Rock Bottom Rates.