As in life, there’s good news and there’s bad news. Looking at our Louisville real estate home values and number of sales, we see that 2010 is a big improvement over 2009. That’s good news! But 2009 wasn’t a very good year, to begin with. That’s bad news. But now Mortgage Rates Lowest in 40 Years.
Many economists today have serious concern over where our economy is heading with government spending on the rise and our deficit growing. That’s bad news. So where’s the counter-balancing good news? Mortgage rates!
Rather than plaster row upon row of 30-year fixed mortgage rate data on this site, wouldn’t you much rather look at some charts? First comes the recent past—here are the rates from the past 3 months.
Charts of Mortgage Rates: United States
Nothing earth-shattering in this 3-month chart but since May 6th the national average for 30-year fixed mortgages dropped below 5%. That’s pretty significant.
When we look back one year, we can see that most of the overall decline has occurred in just the past two months.
Here we see that just as recently as 2000, interest rates were up around 8%. We’re now at almost 4% just a decade later.
This final chart really should give home buyers great enthusiasm. Rates aren’t likely to move much lower. Buying now could save a great deal of money over the term of the loan.
Lower Rates Mean Lower Payments
Here in the United States, homebuyers used to contribute 20% down towards the purchase of their new home. This was primarily done in order to avoid the required private mortgage insurance (PMI). That number has dropped to around 10% in 2003 according to Freddie Mac as more relaxed credit rules enticed more renters into homeownership with lower down-payment requirements.
For our example, let’s say home buyer Tom decides that he can wait until next year to purchase his new home. Since I can’t predict the future, let’s say rates only increase 1.5% from now until next Summer.
Tom grabs his Realtor and finds a great bachelor’s pad and buys it for $200,000. Tom’s interest rate at this time is 6% on a 30-year fixed mortgage. Using our trusty mortgage calculator, we see that by putting down a whopping $40,000 to avoid PMI, the principal and interest portion of his mortgage is just $959.28. Sounds great, right?
Tom’s close friend, Jerry, decided that now was the time buy. His Realtor found an amazing condo close to great restaurants that he buys for the same price—$200,000. The big difference is that Jerry’s current interest rate is just 4.5%. (A client of one of my mortgage broker friends just locked in on a rate of 4.125%.)
With this scenario, Jerry’s P&I portion of his mortgage just $810.70—a difference of $148.58 a month! Over 30 years that’s $53,488.80. I guess that’s why Jerry always beats Tom in those cartoons.
[Please note that the data reflected in these charts are national averages so numbers for our Louisville real estate market would be different.]