What is a Good Mortgage Interest Rate?
In our last post, we discussed the basics of interest rates and how they apply to mortgages. After reading that post, you may have been left wondering what a good mortgage rate actually is. In today’s post, we will address that question so that your mortgage calculations can give you a better idea of what your monthly payment should look like. If you have any questions about interest rates, then contact Local Mortgage today.
What Makes an Interest Rate Good?
At the start of a 30-year fixed rate mortgage, the payments made by the borrower mostly go toward interest. As the mortgage goes on, more and more of the monthly payment is directed to paying off the principal amount loaned. The monthly payment remains the same over the life of the loan, but it is directed at different things as time passes. This is called amortization, and it is standard in the mortgage industry.
Regardless of the rate you secure, a 30-year fixed rate mortgage has a payment schedule structured to take 30 years to complete. A good interest rate does not decrease the time it takes to buy a house, nor does it change the structure of your amortization schedule. Instead, a good interest rate is one that is low, saving you money over the life of the loan.
When it comes to getting a mortgage and buying a house, you ultimately want to save some money on your monthly payments. Securing a mortgage with a low rate is a fantastic way to do so. A lower interest rate does more than give you a lower monthly payment; it also decreases the total amount you pay to own your home. At the end of the day, a lower rate saves you money on a monthly and long-term basis, and is better for your finances than a higher rate would be. Thus, when comparing interest rates, remember that a lower rate is typically better.
That said, you will also want to consider the structure of your home loan. The majority of mortgages use a fixed-rate structure, meaning that the interest rate is locked in for the loan’s entire term. However, some mortgages have variable rates, meaning that the interest rate you pay can change over time. In the case of fixed rate home loans, the lower the interest rate, the better.
History of Mortgage Interest Rates in the U.S.
To know what makes an interest rate good, you will want to know what interest rates have looked like in the past and how they have performed over time. This should give you some context for understanding the rates you see today and how they fit into the larger narrative of interest rates in the United States.
In order to see how interest rates have performed over time, we suggest checking out this graph of the 30-year fixed rate mortgage average on the St. Louis Federal Reserve Bank website. The graph depicts the average interest rate on 30-year fixed rate mortgages since 1971. If you look at the graph, you will immediately notice that the average interest rose in a relatively gradual way over the 1970s before peaking at 18.44% in October of 1981. When compared to average interest rates over the last ten years, which have generally stayed at or below 5%, an average rate over 18% appears remarkable.
While the interest rates in the early 1980s were certainly high, the recent history of interest rates might be even more noteworthy. You probably noticed that interest rates have been falling consistently since the beginning of the 1990s. While there were periods of higher average rates, the general trend seems to be moving downward. This has led to a market that has continually experienced average interest rates near historical lows.
Now might be a good time to point out the difference that just one-tenth of a percentage point can make in your monthly payments. If you head over to our monthly payment calculator, you can see that by securing an interest rate of 4.8% instead of 4.9%, you could save more than ten dollars a month on your payments.This goes a long way over a 30-year loan term. Thankfully, you can always look into refinancing your loan to get a lower rate if rates continue to decline in the future.
Interest Rates in the Current Market
The average mortgage interest rate changes daily. To reflect these changes, we frequently update the rates on our site. Doing so makes it easy for you to compare the rates from Local Mortgage to other rates on similar mortgage products. Feel free to check our rates listing to get an idea of current interest rates in the United States.
Thanks to the recent history of low interest rates, a good rate in the current market is usually one that is below 4%. When you search for a good interest rate, don’t feel like you need to go with the first mortgage rate that comes your way. Browse the market, talk to multiple lenders, and find the one who makes the process feel right to you. At Local Mortgage, we pride ourselves on finding the right mortgage products for your situation and helping you get a good rate.
It may help to remember that you can usually secure a lower interest rate by making your mortgage less risky for the lender. This can be accomplished by making a larger down payment, getting mortgage insurance, or by improving your credit score. If you would like to learn more about the process and what you can do to secure a good interest rate, then feel free to talk to the experts at Local Mortgage today.
Get a Home Loan From Local Mortgage
Whether you have already found the home of your dreams or you don’t know where to begin the home-buying process, the team at Local Mortgage can help you. Contact our experts today to learn more about our process and what makes us unique.