It does not take much effort to find what 30-year mortgage rates are on any given day. They are widely quoted by news organizations and real estate web sites, but what do the numbers really mean?
For example, according to mortgage finance company Freddie Mac, as of early January 2015, 30-year fixed mortgage rates nationally averaged 3.73 percent. OK, but is that good or bad? To help put the raw numbers into perspective, here are five things you should know about 30-year mortgage rates:
- They are currently among the lowest in history. According to figures from the US Federal Reserve, through more than 40 years of history, 30-year fixed mortgage rates have ranged from a low of 3.35 percent to high of 18.45 percent. So, at 3.73 percent, current mortgage rates are definitely at the low end of the range. Sure, they were even lower a couple years ago, but only for a very brief period. Think of it this way: historically, 30-year mortgage rates have been lower than they are now just two percent of the time, while they have been higher 98 percent of the time.
- They have closed the gap on shorter rates. A 30-year mortgage is not your only option. 15-year mortgages are also very popular, and shorter-term mortgages usually offer lower rates. This is true in early 2015, because when 30-year rates were at 3.73 percent, 15-year rates were at 3.05 percent. That's a difference of 0.68 percent, but not too long ago this gap was wider. As recently as March of 2014, the gap between 30-year and 15-year rates reached a full percentage point. So, a longer mortgage is generally likely to cost you more, but in less than a year's time that additional cost has been slashed by 32 percent.
- They are a risk management tool. Think about what the word "fixed" means in the term "30-year fixed mortgage rates." It means that rate is not going to vary over the full 30-years of the loan -- and neither are your monthly principal and interest payments. Remember, when the housing bubble burst a few years ago, many homeowners got burned because they had signed up for more exotic mortgages with rates and payments that could vary. If you want the security of knowing what your mortgage payment is going to be month-in and month-out, a 30-year fixed rate loan is a good choice for you.
- They can represent close to a no-lose proposition. Of course, the downside of locking in your mortgage rate is that you might be stuck with a relatively high rate if rates go down after you buy your home. However, with mortgage rates so near their historical lows, there seems little chance they could fall much further. If somehow they do, you always have the option of refinancing. If you are concerned about this possibility, look for a mortgage with little or no prepayment penalty.
- They are not all created equal. All this talk about 30-year mortgage rates may make you think they move up and down as one, but in truth different lenders offer different terms at different times. Now is generally a good time to get a mortgage, but to make the most of that opportunity, do some comparison shopping to get the lowest rate available for your situation.
Numbers may be the backbone of financial matters, but they don't mean much unless they are put into context. The more you know about the history and nature of today's mortgage rates, the more it becomes clear they are a good deal for home buyers - especially if you shop around for the most competitive rates on the market.