It’s fair to say that 2020 will go down in history as a year to remember...whew my head is spinning just thinking about it! Sadly speaking, Miss Rona has muddled this year, thus far, with some pretty stark memories given we’ve been dealing with the worst global health crisis since the 1918 Spanish Flu. I must admit, it’s been scarily fascinating to witness how much of a ripple effect the pandemic has had on just about every facet of life. From the overall economy and the job market, all the way to social distancing and buying toilet paper; it’s been a true whirlwind to say the least.
One fascinating (depending on what you deem as fascinating) thing that has happened since COVID-19, is the fluctuation of mortgage rates over the past couple of months. Now, I’m far from a mortgage interest rate expert, but I wanted to provide a quick lesson as it relates to mortgage rates….bare with me:
First of all, what the heck is a mortgage rate?: I’m glad you asked. Long story short, it’s the interest rate banks and lenders charge you to borrow money to finance a property. Loosely speaking, nothing in life is free, not even borrowing money. Mortgage rates can be fixed, meaning it doesn’t change during the life of the loan (usually 15, 25 or 30 years); these are "fixed-rated mortgages." Or they can fluctuate (go up or down) based on market conditions; we call this an adjustable-rate mortgage or ARM. There’s pros and cons to each, so be sure to do your googling! When buying my 1st property, I received a fixed-rate mortgage, which ensured me a bit more stability, as my mortgage payments stayed the same (minus annual fluctuations due to property taxes; but that's a WHOLE other story!)
Mkay, great...so how are mortgage rates determined?: The most important thing to know about mortgage rates is that the rate you’re given will ultimately determine your mortgage payments. Obviously you want your payments to be as low and manageable as possible, so the lower the rate, the better. Mind you, your monthly payments are comprised of more than just your mortgage rates; check out the lovely formula: Principal + Interest + Taxes + Insurance = Mortgage Payment. Each term is defined below:
Principal - your outstanding balance on your loan + Interest - (the key topic of this blog post) is the cost of borrowing $ + Taxes - based on your home's assessed value and your location's tax rate + Insurance - homeowners insurance is mandatory (in case ya didn’t know) = Your Monthly Mortgage Payment
Lenders assume risk every time they grant a mortgage loan. The less riskier you are on paper (good credit score, solid debt-to-income ratio, consistent income, etc.) the lower the rate lenders will offer you. So if you’re reading this, and are interested in getting a home within the next 3-6 months, ‘get yo’ stuff together asap!
Alright bet! How has Miss Rona affected mortgage rates?: Getting back to my original point, there’s no part of the economy that hasn’t been impacted by COVID-19. Mortgage rates have been on one heck of a roller coaster since spring of this year. Rates reached an all time low of 2.88% during the 1st week of August, setting a record for the 8th time since 2020 started. Now let me tell you, as a current homeowner and someone who's currently shopping for her 2nd home, 2.88% is LOW & LOVELY!
Just to put it in perspective (and for full transparency and educational purposes), my interest rate on my current home is 3.75%, set back in January 2018, and that was a steal! As of this week, August 14th, mortgage rates for a 30-year fixed mortgage rose to 2.96%, which is still much lower than my 2018 rate. Interest rates are the lowest they've been in 50 years, but inventory is high and home prices are steadily rising nationwide. Those factors, along with a staggering unemployment rate and corona virus-inflected recession, creates a challenge for people to buy homes right now.
Sooo, that concludes today’s lesson on mortgage rates! I hope you learned something! Of course I didn’t come up with all of this mortgage rate tea all by my lonesome, so here are the great articles I referenced, which I recommend you read for more detailed information on mortgage rates and how they work:
Let us know what you think about the recent fluctuations with mortgage rates! Have they impacted your plans to buy a home? Are you a current homeowner who actually benefited from the lower rates by refinancing? Leave a comment below or reach out to us via Instagram @msyounghomeowner. Happy home ownership journey, whenever you begin!