Thirty-year mortgage rates are solidly below historic levels. Mortgage backing agency Freddie Mac reports an average rate of 4.15% for the week of July 7. Similar rates have only been available for a cumulative two out of the last 43 years since Freddie Mac began their weekly rate survey. Investors continue to seek relatively safe investments like mortgage-backed securities – the asset class to which mortgage rate levels are pinned.
Mortgage rates for 30-year fixed loans have rested in a tight range through 2014. Despite recent stability, rates cannot remain at these levels forever. They are guaranteed to rise. This is why the 30-year fixed mortgage is a powerful tool for today’s home buyers and refinancing households.
30-Year Fixed Mortgage Rates Today: Unmatched Stability
Most mortgage consumers take for granted the availability of the 30-year fixed rate home loan. But long-term fixed rate mortgages have only been around since the Great Depression, when the U.S. government sought to stabilize the national economy. Heavy government involvement in the housing industry resulted in finance agencies like FHA and Fannie Mae. These organizations made fixed rate mortgages possible.
In the pre-Depression era, homeowners would re-negotiate their mortgage rate and term every year. If a homeowner lost a job that year, the lender would foreclose. If market interest rates went up, the lender hiked the homeowner’s rate.
This is vastly different than the experience of today’s homeowner. Current lending regulation favors stable products for consumers, even at the expense of lending institutions. If market rates double or triple in the next few years, the homeowner continues to pay the same rate of interest. The mortgage note – the contract the borrower signs at loan closing – guarantees a stable payment.
This is a monumental benefit to today’s mortgage consumer as market rates hit rock-bottom. Home buyers can lock in today’s rate and keep it until they pay off the loan and own the home outright. The 30-year fixed rate mortgage is actually a revolutionary product that makes owning a home less risky than even renting.
Adjustable Rate Loans: Many Owners Come Out on Top
In many countries today – Australia, Spain, and Ireland for instance – a full 90% of mortgages carry a variable rate. Homeowners are subject to higher payments as market conditions change. Compare this to the U.S. where more than 90% of mortgages are fixed rate loans.
Adjustable rate mortgages have their merits. The average life span of a mortgage is just five years, so for many homeowners, a 30-year rate is overkill. Adjustable rate mortgages are typically fixed for 3, 5, or 7 years, during which time the rate is very low. That time frame allows homeowners to pay very little interest while they decide to sell, refinance, pay off the mortgage, or simply let the rate adjust.
Some owners come out on top with an ARM. According to Freddie Mac, the average 5-year adjustable rate mortgage (ARM) is just 2.99% compared to 4.15% for a 30-year fixed. A homeowner with a $200,000 ARM would save $11,000 in interest over the first five years. And, most ARM holders have watched their rates and payments drop after the initial fixed period since rates are so low.
But where an ARM can be cheaper, it’s also more risky. The homeowner takes on the risk of rising rates in exchange for a lower initial payment.
No one can tell the future, and that is why homeowners overwhelmingly opt for fixed rate mortgages. Plans to sell a home are often trumped by life events or market conditions. Homeowners with fixed rate mortgages can wait out inopportune circumstances.
Check 30-year Fixed Mortgage Rates
A 30-year fixed rate mortgage takes the risk and guess work out of future finances. At today’s rates, homeowners are locking in fixed rates that are lower than adjustable rate levels of just a few years ago.
Secure your future and take on a housing payment that is more secure than paying rent. Lock in a rate and payment, and enjoy predictable housing costs over the life of the loan.