The most popular mortgage in America — the 30-year fixed mortgage rate — has hit an all-time low of 2.98% according to Freddie Mac, making this month the best time (statistically speaking) to refinance or apply for a new mortgage since Freddie Mac started tracking mortgage rates in 1971. Other mortgage terms have also been consistently dropping since March thanks to COVID-19’s effects on the real estate market, including fewer houses on sale, fewer buyers and the current state of the Treasury.
Despite millions of Americans facing unemployment and financial uncertainty, mortgage applications have actually increased by 54% compared to a year ago. Many current homeowners are taking advantage of low rates to refinance their current mortgage, and new homebuyers are taking the leap.
Is now a good time to refinance a mortgage or buy a home?
From a pure interest rate perspective, it’s literally the best time in the last 50 years. If you already own a home, refinancing your mortgage with a lower interest rate could save you thousands of dollars across the term of your loan. It’s more common than you might think — about 64% of mortgage activity is made up of refinancing applications.
[ Read: The Best Mortgage Rates of 2020 ]
If you were contemplating buying a home — or delayed plans to do so because of the pandemic — these record-low mortgage rates make 2020 an opportune time to get quotes from the best mortgage lenders. So far, prices on the housing market are rising, but a lower mortgage rate can expand the range of house prices you can afford.
Let’s say you want to purchase a $400,000 home. The average 30-year interest rate a year ago was around 3.86% — that’s a $1,891 monthly payment. Best-case scenario, you get the 2.98% to buy the house now and the monthly payment would be $1,682. That $200 monthly savings from the lower rate would add up to just over $70,000 saved in the lifetime of the loan.
Despite the low average rate, you certainly aren’t guaranteed to qualify for that 2.98% when you apply. Mortgage rates are based on many personal factors and will vary by lender. The quotes for the averages that Freddie Mac is reporting are often based on the best-case scenario — a buyer with a high credit score, a 20% down payment and purchasing a single-family home. Regardless, your chances of scoring a lower rate than usual are high right now.
If you’re on the fence, it doesn’t hurt to get a few quotes and see what you could qualify for, though the decision to buy a new home or refinance a mortgage should never be rushed, even when rates are at record lows. As always, mortgage rates are just one factor when deciding whether to buy a home or refinance, so make sure it’s the right financial choice.
- The Best Mortgage Rates of 2020
- 15-Year or 30-Year Fixed Mortgage: Which is Right for You?
- Here’s How Much the Average American Pays in Interest Each Year