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Mortgage Rates Reach New Record Lows

News | 30th Aug 2012

If you’re in the market for a mortgage, now may be the best time to strike.  Rates for mortgages keep falling and have reached record lows, according to a recent report released from mortgage mammoth Freddie Mac.

The most popular type of mortgage, the 30 year fixed rate, has dropped to 3.62 percent.  This is down from last week’s rate of 3.66 percent.  During ten of the last eleven weeks, the rate for this type of mortgage has either stayed steady or hit a new low.

15 year fixed rate mortgages are also down.  It now stands at 2.89 percent, down from last week’s rate of 2.94 percent.

Freddie Mac attributes this record-setting trend to low Treasury bond yields.  Economic data that has been collected suggests that less consumer spending and an overall decrease in the manufacturing industry has driven long term Treasury bond yields lower.  This has allowed the rates for 30 year and 15 year fixed rate mortgages to reach these all-time lows.

Homeowners who want to refinance their existing mortgage often opt for a 15 year fixed rate mortgage.  This allows them to decrease their total interest payments.  If you calculate a $200,000 loan at the current rate, a homeowner would pay $1,370 per month and spend only approximately $47,000 in interest for the lifetime of the mortgage.

For those homeowners who opt for a 30 year fixed rate mortgage, that same $200,000 loan would give them a monthly payment of $911, although a total interest payment of $128,000 over the life of the loan.  While that’s a hefty increase in the overall amount of interest paid, it is a good option for those homeowners looking to keep their monthly payments low.

At this time last year, the rates for 30 year loans were at 4.6 percent.  This costs homeowners about $100 more a month in payments.  It is easy to see how these record lows have injected some enthusiasm into the housing market.

Experts agree that mortgage rates will probably remain low for the foreseeable future.  Based on the economic data collected over the past few weeks, the rates will continue to creep down.  The difference between Treasury yields and interest rates continues to remain larger than usual, with about two percentage points separating them.  The average spread is approximately 1.7 percentage points.  Those who follow this data agree that this means rates for fixed rate mortgages could fall even further if Treasury yields decrease, or even remain the same.

While this might not be good news for the overall economy, it is great news for would-be homebuyers and homeowners who are looking to refinance at a lower rate.  The best time to take advantage of these record low interest rates is right now.

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