Attributed to Frank Nothaft, vice president and chief economist, Freddie Mac.
“Average 30-year conventional fixed mortgage rates fell below 4 percent for the first time in history this week following a sharp drop in 10-year Treasuries early in the week as concerns over a global recession grew. Average 15-year fixed rates fell to a record low in the PMMS as well. Interest rates for 1-year ARMs, however, rose, as the Fed began replacing $400 billion of its short-term Treasury securities, which serve as benchmarks for many ARMs. Also, in his testimony to Congresss Joint Economic Committee on Tuesday, Federal Reserve Chairman Bernanke said the recovery is close to faltering and stressed the need for lawmakers to act.
via “30-Year Fixed Mortgage Rate Falls Below 4 Percent” by FreddieMac.com (emphasis added)
ARMs = Adjustable Rate Mortgages
This news means that long-term borrowing rates (e.g. 30-year fixed mortgage) are lower because demand for Treasuries (i.e. U.S. Government debt) is higher. This can be called a “flight to safety” by the investors of the world.
If more people want to buy inherently “safe” investments like Treasuries, then Treasuries don’t have to offer as much interest rate return to entice investment.
Long story short: borrowers get rewarded with lower borrowing rates and savers have lower “yield”/reward for investing in safe securities.
With a 5% down payment and approximately $1,260 monthly payment (including PITI and PMI), here’s your purchasing power at different interest rates:
- 4.5% rate = $180,000 purchase price
- 5.5% rate = $165,000 purchase price
- 6.5% rate = $150,000 purchase price
Calculations abbreviated from Mickey Shannon, AMC Mortgage’s recent flyer.
So you can afford $30,000 more purchase price at a similar monthly payment just by having a lower borrowing rate.
Want to buy a house (primary residence, vacation, or investment) at the lowest interest rates in history? I’d be glad to help!