There’s never been a better time to get a mortgage. Ever. The average interest rate on a 30-year mortgage dropped to 3.4 percent this week, according to Freddie Mac, the taxpayer-owned mortgage finance company.
That’s the lowest average ever recorded. And it could be great news for Credit.com readers including Sandy and Chad, who are trying to refinance their way into more affordable loans. Even though neither has perfect credit, and thus will not qualify for such historically low rates, the lower overall cost of borrowing could trickle down to people with their credit scores.
“We would be fine with just a lowered interest rate since right now it is at 8.25 percent,” Sandy wrote in response to a recent Credit.com story.
Meanwhile, Chad is looking for a lender that “will work with me to lock in at a reasonable interest rate (hopefully between 4% – 5.5%),” he wrote in a recent comment to Credit.com.
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“It is great news,” says Gerri Detweiler, Credit.com’s consumer credit expert. “It’s still just unbelievable that rates are as low as they are, and it’s certainly worth considering refinancing.”
Most of the credit for the rate drop goes to the Federal Reserve, according to Freddie Mac’s report. Fed Chairman Ben Bernanke announced on Sept. 13 that the central bank will buy $40 billion worth of mortgage-backed securities every month for the foreseeable future. That is helping banks feel more comfortable about lending, since they know they can sell a large chunk of the mortgages they write to the federal government, according to the report.
“Fixed mortgage rates continued to decline this week, largely due to the Federal Reserve’s purchases of mortgage securities, and should support an already improving housing market,” Frank Nothaft, Freddie Mac’s chief economist, said in a press release.
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People who can afford mortgages with shorter terms may benefit even more. The average interest rate on a 15-year fixed-interest mortgage is now 2.73 percent, down a tad from last week and significantly lower than this time last year, when the average rate was 3.28 percent.
“I mean, 2.5 percent for a 15-year mortgage? Holy cow!” Detweiler says.
Of course, there are limits to the good news. The new, record-low rates are only for people with very good scores, so people with lower scores may pay significantly more, says Barry Paperno, a credit scoring expert and Credit.com’s community director. “But it should trickle down to people with lower scores,” Paperno says.
Also, many homeowners may find that record low interest rates do little to fix all the problems caused by the mortgage bust and the Great Recession. Many people whose homes lost equity during the mortgage bust may still be underwater or close to even, giving them little equity with which to qualify for a refinanced loan, Detweiler says.
“It’s fantastic for anyone who can qualify” says Detwiler, “but I think there’s an awful lot of consumers out there who are frustrated because it can’t do anything for them.”
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Image: Miika Silfverberg, via Flickr