by Mike Padlo
December 17, 2022
We’ve been on an interest rate roller coaster for the last few years. At this point, you might be wondering just what a good mortgage interest rate is? You might be thinking you should wait it out before buying. The question is….wait for what?
I’m NOT going to tell you if you should buy a house right now or not. I AM going to give you some important information to consider while making that decision. Information that should help you decide exactly what a good interest rate for a mortgage loan is. Now, I have a number in mind that I consider a good, competitive rate. But, I’m not going to share that with you just yet, because I don’t want to influence your ability to judge that for yourself after seeing the data I’m about to share. By the way, all the data your about to see can be found on the Freddie Mac website, right here: https://www.freddiemac.com/pmms/pmms30
The uncertainty surrounding the question of what to consider a good interest rate has been fueled by, not only the fast changing rates of the past year, but to a large extent, by the historically low rates of 2020, 2021 and early 2022.
The average rate for 2020 and 2021 were 3.11% and 2.96% respectively and rates stayed in that general neighborhood through the spring of 2022, before they started moving up and moving up fast. Feeling like they missed the boat on low rates during this time, some potential home buyers are sitting on the sidelines with the intention of waiting it out until rates return to lows like these. The problem with that is, they could be waiting for quite some time. Rates in the low 3’s and under 3% are literally a once in a lifetime event. Let’s take a look at historical rates.
Here is a graph showing the annual average mortgage rates for the last 50 years. I’ve added a line to represent the 3% rate level. As you can easily see, these crazy low rates at or below 3% have only happened ONCE in the last 50 years. So I’m not kidding when I say “once in a lifetime”. Look at how high they were in the 80’s! And all through the 90’s up until 2008, mortgage rates never fell below 6%.
The average for the last 50 years is 7.75%. Although the literal average for the last 20 years was 4.76%, this might be a bit misleading. Those last 20 years include the crazy, once in a lifetime rates we saw during the pandemic. If you look at the 20 years ending just before Covid-19 arrived, the average rate was 5.44%. I think this number is a more practical one to use for a recent 20 year average.
Now, you can judge for yourself what makes a “good” mortgage loan interest rate. Personally, based on what you can see in the historical data, my idea of a competitive mortgage rate, one that shouldn’t be considered a barrier to buying the home you love, would be any rate below 6%. At that point, we’re dealing with a pretty typical rate that has been prevalent for many of the balanced, competitive and affordable housing markets we’ve seen in the last three decades. By the way, the current national rate as of the writing of this post in mid December 2022, is about 6.15%. So, we’re getting close to that threshold.
What is most important though, is what you can afford for a mortgage payment and if the current rates allow you to borrow the money you need to buy the house you’re looking for. Even if it’s higher than what might be considered an ideal mortgage rate. The problem with waiting for rates or any other market condition to change, is that you might be waiting for something that is never going to change, or that might not move in a direction you’re hoping for quite some time. Meanwhile, you might be missing out at a chance to get that beautiful home that was available while you were on the sidelines.
If you’d like to keep track of mortgage rates as you consider or are in the process of buying a home, this page on my website has mortgage rate information that is updated daily, along with a mortgage calculator you can use to estimate the payment you could expect for any loan amount you are considering. If you want the best advice or information regarding loan options and what works best for you, find a trusted loan officer and lean on them for the answers you need. If you don’t know where to find a loan officer, ask your REALTOR®. Odds are, they can recommend a good one for you.
If you’re a first time buyer and you’re a bit overwhelmed, check out the page on my website dedicated to first time buyers or this video I made covering various loan and down payment options here in Michigan. If you’re looking for a home or considering buying soon, good luck on your journey. I hope this information was help for you.