It’s true that mortgage rates are at a historic low right now – so low that you might be inundated with junk mail, spam, and calls from churn-and-burn mortgage companies. In fact, today’s rates are not so far from the all-time low for the benchmark 30-year rate. which was 3.5 percent in December of 2012. With rates slipping over the past few months, affordability for purchasing is increasing.
For example, a 1 percentage point difference (4.5 to 3.5) on a $250,000 mortgage can mean $144 less per month in mortgage payments.* (See more info at Bankrate.com) While this is great news, sound financial planning avoids knee-jerk reactions to rate fluctuations. Instead, it’s better to take the long view and do a thorough analysis of the best way to leverage current conditions.
The bottom line is that great rates alone should never drive a new mortgage or refinance application. The benefits are case-by-case, depending on your unique circumstances. That’s where guided, mathematical analysis comes in.
Three Scenarios in the Great Rate Debate
- Increased affordability is great news for first-time homebuyers who are ready to say goodbye to renting and for those ready to move up to their dream homes.
- Saving up for a conventional downpayment may not make sense given the rate of housing increases, which would offset the advantage of the lower rate.
- Existing homeowners who are tempted to refinance need to first determine their break-even point, the length of time they plan to stay in the home, and all their other financial variables.