Homeownership became more cost-effective this week, as 30-year fixed mortgage rates dropped below 7% for the primary time since August.
After a peak of nearly 8% in late October, the common 30-year mortgage rate has been sliding every week since. As of Thursday, the speed is 6.95%, in response to Freddie Mac data.
With inflation easing, mortgage rates have fallen amid expectations that the Federal Reserve will make rate of interest cuts in 2024. Most major lenders and realtor organizations expect 30-year rates to land somewhere between 6% and seven% in 2024.
For potential buyers previously priced out of the true estate market, the reduced mortgage rate could give them the financial cushion they should buy a house.
Based on the brand new average rate of 6.95%, the monthly costs for a 30-year fixed rate mortgage price $300,000 could be $1,986. Compared with October’s peak rate of seven.79%, that works out to $172 in monthly savings. For a mortgage price $400,000, the savings could be $229 per thirty days.
Whether the reduced mortgage rate will offer enough respiratory room for buyers will depend upon their income, savings and the acquisition price of a house.
Unfortunately for buyers, home prices have continued to rise in 2023, which could offset the rate of interest savings in lots of markets. The median existing home price is $413,500, a year-over-year increase of three.4%, in response to online realtor Redfin’s latest data.
A standard rule of thumb, referred to as the 28/36 rule, says that a house is inexpensive when your housing expenses — mortgage payments, taxes and insurance payments — don’t exceed 28% of your gross monthly income. Your total debt including your mortgage, other loans and bank cards, should not be greater than 36% of your gross monthly income as well.
Should you’re serious about buying a house, use CNBC Make It’s mortgage calculator to determine how much your monthly mortgage payments could be based on the prevailing 30-year rate of interest.
Note that the calculator doesn’t include additional expenses corresponding to insurance, property taxes and personal mortgage insurance, which is often required for mortgages with lower than a 20% down payment.