Capture the Glory of the Summer of ’16 and Lock In Low Mortgage Rates

If you are among the estimated 3 million households likely to close on the purchase of a home from now through August, the summer of ’16 is looking like a golden period of low mortgage rates.
The average rate for a 30-year fixed mortgage is now 3.63%, near April’s average of 3.61%. Rates had moved up in May, anticipating that the Federal Reserve might raise short-term rates as early as June.  However, the May jobs report significantly lowered the risk of seeing higher rates for the rest of the spring and into the summer.

Rates are solidly lower than where they ended 2015 (at 4.09%) and where they were this time last year (4.12%). The difference adds almost 6% to buying power and expands the ability to qualify as a result of lowering the mortgage payment, which factors into the debt-to-income calculation.
Looking back four years (it is graduation season, after all), the summer of 2012 was slightly more advantageous in regard to rates, but that was the year that the housing recovery began. The average 30-year fixed rate has reached or stayed above 4% in every other summer since then. We think that rates are likely to stay right about where they are now (well under 4%) for the rest of the summer, but they are very likely to be higher next year. This is the summer to lock in rates.

But guess what? Rates are not monolithic. Even when looking at the same mortgage types, rates vary dramatically by lender and location. Example: The lowest current average rates being offered for 30-year fixed mortgages are for homes in Alabama, the District of Columbia, Georgia, Iowa, Louisiana, Mississippi, New Mexico, Oklahoma, South Carolina, and Tennessee.

In these states, the average 30-year fixed rates being offered by lenders are 3 to 5 basis points lower than the current U.S. average. A basis point is 0.01%.

Think that’s irrelevant? On a median-priced home financed with a 30-year fixed-rate mortgage with 20% down, a rate that’s 5 basis points lower would save $100 in interest in the mortgage’s first year and over $2,000 over the life of the loan. Not so irrelevant after all.

Even if you aren’t in these states with the lowest average, it pays to shop around!