Monthly mortgage payments are 60% higher than a year ago, according to NAR. Buyers can save by shopping around for different types of loans.
The interest rate for the 30-year fixed-rate mortgage crossed a major threshold this week, hitting 6.02%—the first time it has broken 6% since 2008, Freddie Mac reported Thursday. Volatile mortgage rates are sending shockwaves through the housing market and unnerving home buyers who are concerned about shrinking affordability. The 30-year loan averaged just 2.86% a year ago.
The increased rates have pushed monthly mortgage payments 60% higher year over year, says Nadia Evangelou, senior economist and director of forecasting for the National Association of REALTORS®. “There is no doubt that these higher rates hurt housing affordability,” Evangelou writes on the association’s blog. Mortgage rates already marked a grim milestone when they hit 5.7%, a rate that puts a median-priced home out of reach for the typical household.
Mortgage rates this week continued to rise alongside higher-than-expected inflation numbers, adds Sam Khater, Freddie Mac’s chief economist. “Although the increase in rates will continue to dampen demand and put downward pressure on home prices, inventory remains inadequate,” he says. “This indicates that while home price declines will likely continue, they should not be large.”
Further, homeownership may offer a hedge against inflation, Evangelou says. Fixed-rate mortgages are not adjusted to inflation, and home buyers’ monthly payments will remain the same during the loan period. She says that’s important at a time when rents are rising to their highest level in nearly four decades.
Freddie Mac reports the following national averages with mortgage rates for the week ending Sept. 15:
- 30-year fixed-rate mortgages: averaged 6.02%, with an average 0.8 point, increasing from last week’s 5.89% average. Last year at this time, 30-year rates averaged 2.86%.
- 15-year fixed-rate mortgages: averaged 5.21%, with an average 0.9 point, rising from last week’s 5.16% average. A year ago, 15-year rates averaged 2.12%.
- 5-year hybrid adjustable-rate mortgages: averaged 4.93%, with an average 0.2 point, increasing from last week’s 4.64% average. A year ago, 5-year ARMs averaged 2.51%.
Trying a Different Mortgage Option May Offer Savings
As the average for the 30-year fixed-rate mortgage rises, more home buyers are reaching for adjustable-rate mortgages or 15-year fixed-rate mortgages to lock in a lower rate. A new survey from LendingTree shows that 15-year mortgages could save home buyers an average of $214,899 in interest over the lifetime of their loan compared to 30-year mortgages. Homeowners in California, Hawaii, Washington, Massachusetts and New York stand to save the most from 15-year fixed-rate mortgages, the study shows.“Borrowers should always keep in mind that different loan types exist and that one size doesn’t necessarily fit all,” says Jacob Channel, LendingTree’s senior economist. “For example, while a 15-year fixed mortgage may be the best option for some, it isn’t always the best option for everyone. Borrowers shouldn’t feel discouraged if they can’t afford a mortgage with a shorter repayment term. Ultimately, while factors like how much interest a loan charges or how long it will take to be paid off are important, they aren’t as important as whether or not that loan is affordable to a borrower.”
Source: lendingtree.com
