Is 2.75 a good mortgage rate?
Buying a home at a low 2.75% rate is fantastic by today's standards. But when you experience buyer's regret and want to sell, you have to deal with current mortgage rates, which are closer to 7%. You might feel stuck if you can't afford to cough up the cash for an outright purchase.
30-year rates have marched from 16.63% in 1981, to just 3.13% in June 2020. Many wouldn't have thought it possible 20 years ago — or even one year ago — but rates in the low-3% range are now being widely quoted. And rates in the 2s are a reality for some.
If you're looking to refinance your current mortgage, today's average interest rate for a 30-year fixed refinance is 6.99%, rising 11 basis points compared to this time last week. In addition, today's average 15-year fixed refinance interest rate is 6.42%, increasing 4 basis points over the last week.
The best way to get a good mortgage rate is to get quotes from at least three different mortgage lenders and compare them. That way, you'll know you're likely getting a good rate. If you're having trouble getting a lower rate, you might want to first take some time to work on your credit or pay down debt.
Michael Zuber, author of One Rental at a Time and former tech worker turned real estate investor, told Fortune that a 30-year fixed mortgage at a rate of 3% is without question one of the best assets most homeowners will ever have.
As a general rule of thumb, you can afford to finance a house that costs between 2 and 2.5 times your gross yearly income. But this is just a general guideline, and it doesn't always work perfectly for everyone. Fortunately, the general rule of thumb isn't the only affordability tool at your disposal.
The average 30-year fixed rate reached an all-time record low of 2.65% in January 2021 before surging to 7.79% in October 2023, according to Freddie Mac.
2021: The lowest 30-year mortgage rates ever
And it kept falling to a new record low of just 2.65% in January 2021. The average mortgage rate for that year was 2.96%. That year marked an incredibly appealing homeownership opportunity for first-time homebuyers to enter the housing market.
Mortgage giant Fannie Mae likewise raised its outlook, now expecting 30-year mortgage rates to be at 6.4 percent by the end of 2024, compared to an earlier forecast of 5.8 percent.
| Product | Interest Rate | APR |
|---|---|---|
| 30 Year Fixed | 6.874% | 6.957% |
| 20 Year Fixed | 6.646% | 6.748% |
| 15 Year Fixed | 6.013% | 6.145% |
| 10 Year Fixed | 5.844% | 6.054% |
How can I get my mortgage payment down?
- Get rid of mortgage insurance.
- Consider recasting your loan.
- Shop around for home insurance.
- Ask about a mortgage modification.
- Refinance your mortgage.
- Bottom line.
If inflation falls significantly and the economy enters a deep recession, it is possible that mortgage rates could fall back to 3%. However, this scenario is considered unlikely by most economists.
"With goals of the Federal Reserve to get inflation around the 2% mark, I don't expect the Feds to lower rates until September or later in 2024," Schachter says. "Unfortunately, we still have to have a bit more pain in the economy with higher unemployment to see the Federal Reserve lower rates."
Buying a home at a low 2.75% rate is fantastic by today's standards. But when you experience buyer's regret and want to sell, you have to deal with current mortgage rates, which are closer to 7%. You might feel stuck if you can't afford to cough up the cash for an outright purchase.
While mortgage rates fluctuate so often—which can affect the definition of a good interest rate for a mortgage—4.75% is lower than the current average for both a 15-year fixed loan and a 30-year mortgage. At the end of 2022, good mortgage rates for 15-year fixed loans generally started around 5%.
More than three-quarters of homeowners — 78.7 percent — have a mortgage rate below 5 percent, while nearly 6 in 10 — 59.4 percent — have a mortgage below 4 percent. Just 22.6 percent have a mortgage rate below 3 percent, according to Redfin.
One Spouse's Income Doesn't Meet Requirements
Many lenders use the 2/2/2 rule to evaluate loan eligibility, which typically requires: 2 years of W-2s. 2 years of tax returns. 2 months of bank statements.
The general rule is that you can afford a mortgage that is 2x to 2.5x your gross income. Total monthly mortgage payments are typically made up of four components: principal, interest, taxes, and insurance (collectively known as PITI).
If you follow the 2.5 times your income rule, you divide the cost of the home by 2.5 to determine how much money you need to earn annually to afford it. Based on this rule, you would need to earn $100,000 per year to comfortably purchase a $250,000 home.
In its March Mortgage Finance Forecast, the Mortgage Bankers Association predicts that mortgage rates will fall from 6.8% in the first quarter of 2024 to 6.1% by the fourth quarter. The industry group expects rates will fall below the 6% threshold in the first quarter of 2025.
What is the average mortgage?
Data from the Council for Community and Economic Research (C2ER)'s 2022 Annual Cost of Living Index shows that the national average monthly mortgage payment is $1,768. This figure differs from the median monthly payment in the U.S., which is $1,532.
| Product | Interest Rate | APR |
|---|---|---|
| 30-Year Fixed Rate | 6.99% | 7.04% |
| 20-Year Fixed Rate | 6.74% | 6.79% |
| 15-Year Fixed Rate | 6.42% | 6.50% |
| 10-Year Fixed Rate | 6.28% | 6.36% |
Interest rates reached their highest point in modern history in October 1981 when they peaked at 18.63%, according to the Freddie Mac data. Fixed mortgage rates declined from there, but they finished the decade at around 10%.
Spurred by the Great Inflation, the 30-year fixed mortgage rate reached a pinnacle of 18.4 percent in October 1981, according to Freddie Mac. Once the Fed reined in inflation, the 30-year rate seesawed down to the 9 percent range, closing the decade at 9.78 percent.
The 1970s and 1980s
As we headed into the 80s, it's important to note that the country was in the middle of a recession, largely caused by the oil crises of 1973 and 1979. The second oil shock caused skyrocketing inflation. The cost of goods and services rose, so fittingly, mortgage rates did too.
