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Mortgage rates inched down again this week and are the lowest they’ve been since the first week of April, according to Freddie Mac. Average 30-year mortgage rates were 6.86% this week, a single basis point decrease from the week before.

“The 30-year fixed-rate mortgage continues to trend down, hitting the lowest level in almost three months,” Sam Khater, Freddie Mac’s chief economist, said in a press release. “By historical standards, the economy is in good shape, and we expect rates to continue to come down over the summer months, bringing additional homebuyers back into the market.”

Mortgage rates are still relatively high overall, keeping many would-be homebuyers out of the market. Rates are expected to trend down throughout the remainder of 2024 and beyond, but if you don’t want to wait for rates to drop, you can lessen the impact of today’s high rates by getting quotes from multiple mortgage lenders. This will help you find the lowest rate available, saving you money in the long term.

Today’s mortgage rates

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Today’s refinance rates

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Mortgage Calculator

Use our free mortgage calculator to see how today’s interest rates will affect your monthly payments:

Mortgage Calculator

$1,161
Your estimated monthly payment

Total paid$418,177
Principal paid$275,520
Interest paid$42,657
  • Paying a 25% higher down payment would save you $8,916.08 on interest charges
  • Lowering the interest rate by 1% would save you $51,562.03
  • Paying an additional $500 each month would reduce the loan length by 146 months

By clicking on “More details,” you’ll also see how much you’ll pay over the entire length of your mortgage, including how much goes toward the principal vs. interest.

Mortgage Rate Projection for 2024

Mortgage rates started ticking up from historic lows in the second half of 2021 and increased dramatically in 2022 and throughout most of 2023.

Many forecasts expect rates to fall this year now that inflation has been coming down. In the last 12 months, the Consumer Price Index rose by 3.3%. This is a significant slowdown compared when it peaked at 9.1% in 2022, but we’ll likely need to see more slowing before rates can drop substantially.

For homeowners looking to leverage their home’s value to cover a big purchase — such as a home renovation — a home equity line of credit (HELOC) may be a good option while we wait for mortgage rates to ease. Check out some of our best HELOC lenders to start your search for the right loan for you.

A HELOC is a line of credit that lets you borrow against the equity in your home. It works similarly to a credit card in that you borrow what you need rather than getting the full amount you’re borrowing in a lump sum. It also lets you tap into the money you have in your home without replacing your entire mortgage, like you’d do with a cash-out refinance.

Current HELOC rates are relatively low compared to other loan options, including credit cards and personal loans. 

When Will House Prices Come Down?

We aren’t likely to see home prices drop this year. In fact, they’ll probably rise.

Fannie Mae researchers expect prices to increase 4.8% in 2024 and 1.5% in 2025, while the Mortgage Bankers Association expects a 4.5% increase in 2024 and a 3.3% increase in 2024.

Sky high mortgage rates have pushed many hopeful buyers out of the market, slowing homebuying demand and putting downward pressure on home prices. But rates have since eased, removing some of that pressure. The current supply of homes is also historically low, which will likely push prices up.

What Happens to House Prices in a Recession?

House prices usually drop during a recession, but not always. When it does happen, it’s generally because fewer people can afford to purchase homes, and the low demand forces sellers to lower their prices.

How Much Mortgage Can I Afford?

A mortgage calculator like the one above can help you determine how much house you can afford. Play around with different home prices and down payment amounts to see how much your monthly payment could be, and think about how that fits in with your overall budget.

Typically, experts recommend spending no more than 28% of your gross monthly income on housing expenses. This means your entire monthly mortgage payment, including taxes and insurance, shouldn’t exceed 28% of your pre-tax monthly income.

The lower your rate, the more you’ll be able to borrow, so shop around and get preapproved with multiple mortgage lenders to see who can offer you the best rate. But remember not to borrow more than what your budget can comfortably handle.

Molly Grace

Mortgage Reporter

Source: businessinsider.com

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Ginnie Mae has released a term sheet for its revised Home Equity Conversion Mortgage securitization program, starting a comment period that ends on July 31.

With the update, termed HMBS 2.0, Ginnie Mae wants to enhance liquidity for issuers by allowing the re-pooling of active and non-active buyouts into new custom, single-issuer pools.

HECMs are reverse mortgages insured by the Federal Housing Administration. Unlike Fannie Mae or Freddie Mac, which purchase and securitize mortgages, Ginnie Mae is merely a secondary market guarantor for government agency products.

Ginnie Mae first put out a guide for HECM mortgage-backed securities issuances in July 2007, with the initial deal coming out in November of that year.

Under current HMBS rules, when a reverse mortgage reaches 98% of the FHA maximum claim amount, the issuer must purchase it out of the pool. At that time, it can be assigned to FHA, which takes over servicing the loan and disburses funds to the lender.

But issuer liquidity during the process can be a problem, a Ginnie Mae blog post said, adding “one of the largest HECM issuers became insolvent in early 2022 when interest rates spiked and liquidity dried up.” While it didn’t specify the lender and the dates don’t quite add up, Reverse Mortgage Funding filed for bankruptcy in November of that year because of liquidity issues.

Furthermore, as interest rates increased last year, HECM originations slowed. At the same time existing loans reached that 98% limit.

“This confluence of factors creates significant liquidity needs for the industry,” the blog said. “Unless addressed proactively, this can lead to future disruption in the HECM market.”

The market appears to have picked up as of late, with 2,460 FHA reverse mortgage endorsements in May, according to Reverse Market Insight. That was up nearly 17% from April’s 2,150 and 20% compared with May 2023, when 2,051 HECMs were endorsed.

Meanwhile, homeowners 62 and older saw their housing wealth increase to $13.19 billion during the first quarter, up by $328.5 billion, the National Reverse Mortgage Lenders Association said.

Senior home values increased to an all-time high of $15.5 trillion during the period but that was offset by an increase in debt from $10.2 billion to $2.35 trillion, the NRMLA/RiskSpan Reverse Mortgage Market Index reported.

Under Ginnie’s proposal, the weighted average principal balance in an HMBS 2.0 will be limited to 95%. That buffer is needed to provide an economic incentive to protect Ginnie Mae, and ultimately taxpayers, against a decline in home values.

Multiple valuation methods will be permitted. These include automated valuation models and broker price opinions. However, a 10% haircut will be applied in order to protect Ginnie Mae from home-price declines.

Under the proposal, the repurchase rule will kick in at 150% of MCA, or when the mortgage is assigned to the Department of Housing of Urban Development or the note is terminated, whichever comes first.

“Soliciting public comment on the structure of the HMBS 2.0 program is critical to developing a program that supports Issuer liquidity while protecting taxpayers,” said Ginnie Mae Acting President Sam Valverde, in a press release. “Ginnie Mae remains committed to supporting the government reverse mortgage market and we will work swiftly to address input received as we work to implement the program.”

Source: nationalmortgagenews.com

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You want to learn how to be frugal but not cheap… then, you are in the right place.

Simply put… frugal living is saving money at it finest.

To be honest, though, learning how to be frugal can come with spending more money than you planned in the name of frugality. The truth can hurt. But, in order to be frugal, you must save what you would normally spend.

That means you are economical with money.

The list of 175+ frugal living tips seems like a great place to start when you are learning how to be frugal, right?

Wrong!

You need to focus on a few basic habits first. Set yourself up for success. And then, slowly incorporate more frugal ways to save money.

In this post, that is exactly what you will learn.

The frugal habits you need to be successful along with the best frugal life hacks to guarantee success.

Let’s dig in…

Can being Frugal make you Rich?

Absolutely yes!

The key is to save money from your frugal hacks.

Remember the age-old saying, “A penny saved is a penny earned.”

Every penny will slowly add up to the next money milestone.

If you don’t believe me, then check out this millionaire’s story of being frugal.

How Being Frugal can Cost You?

It can IF you are not careful.

Being frugal is about saving money. However, it is possible to spend more money in the name of frugality.

The first example would be being more than you need just because it is a good sale, deal, or clearance price that you don’t want to miss out on.

Next, in your search to find the cheapest option, you actually spend more over time replacing it because the quality isn’t quite the same.

There is a fine line between frugality, being cheap, and simply overspending on deals.

Just be weary of overspending money in the hunt of saving money.

How to be Frugal with Money

These are the habits you want to embrace to become a frugal person.

Personally, I like to think being frugal is being picky with my money.

I loathe my investment accounts going down, so why would I want to buy things that we don’t need or don’t matter in the long wrong. That is why I choose to be frugal with money.

Specifically, I choose to be economical with how we spend money.

Now, let’s dig in to understand how to be frugal with money.

1. Know Your Goals

First, you must know your goals. If you don’t have a goal, then you aren’t going to make any progress. Period.

In today’s society, it is SO easy to spend money without even realizing it. That is the point of business – they are out to market for your money (and they are good at it, too).

You must prioritize you first.

This is something we hear over and over. Prioritize your self-care before taking care of others. The same holds true for your money.

Action Step #1 – Sit down and write out your financial goals.

If this is something you haven’t done before, then check out our helpful guide to rocking your financial goals.

2. Understand your Spending Habits & Triggers

This one is HUGE!!

If you don’t know how and where you spend money without thinking, then you will never be able to stop the spending. You can’t slow the bleed.

First of all, I will admit that uncovering your spending habits is hard. It is introspective. It can be painful. Maybe even demoralizing.

But, until you let go of your previous financial failures, you won’t be able to move on.

This is an important step to make serious progress in your life. You may be amazed how this seemingly simple things will hold you back.

Action Step #2 – Review bank statements or credit card transactions. Look for things you bought without planning for them.

This will highlight your spending habits.

As for your triggers, watch your emotions and think what you automatically do when you are happy, sad, mad, and celebrating.

3. Save First

Oh my, pay yourself first.

This is something I focus on a lot at Money Bliss and for good reason. Saving money is the backbone to financial success.

If you don’t save money, then you are left scrambling when you need cash or stuck going into debt. This is a vicious hamster wheel that debt will overtake you.

Start by saving $10 a day. Many times you can find that money by uncovering your spending habits.

From there, look at increasing your saving percentage each month.

Action Step #3 – Figure out how much you save each week, each month, and your saving percentage. Brainstorm ways to increase how much you save.

To help our readers, you will find many spreadsheets and printables to help you figure out how much you save and track your savings progress. Once signed up on our email list, you will receive the password.

4. Spend Less Than You Make

Your expenses must be lower than your income. Period.

If you are currently spending more than you make, then you must look at ways to drastically cut expenses. Stop hoping that your situation will change and actually do something about it.

This seems like a very easy math concept. Yet, most people struggle with basic money management.

If you don’t believe that saving an extra $5 day, then think about having $1825 in your pocket.

Now, let’s flip it the other way, if you are overspending by $75 a week, then by the end of the year, you are in the hole $3900 plus interest if you took out debt.

Action Step #4 – Figure out your bare bones budget. Then, decide what fun spending items to keep to make sure you spend less than you make.

Here is a guide to help you figure out your bare bones budget. Also, you will find bare bones budget printable in our free library area.

5. Patience

Lastly, you must have patience.

Changing your money management won’t happen overnight. While you can have quick wins and successes, this is the race won by the turtle.

Patience comes with planning and that is one thrifty habit you should pick up.

When you become frugal with money, you plan how you spend your money and save your money. Many times, that means waiting for a sale to buy an item you need or accumulating money for another date.

Action Step #5 – Show self-restraint and try a no spend week or month.

By holding a no spend challenge, it will help you reshape your finances as well as help you prioritize what is important. As a reader, you have access to our no spend printables, too!

Frugal Life Hacks

These are the specific frugal hacks to save money.

These are the key areas you need to focus your energy on. Over time, they will become habits.

1. Pay Yourself First

Yep, this one again.

If you are frugal, then you pay yourself first.

You are focused on two things – how to save more money and how to make more money.

This pay yourself first concept will have you winning at money management – guaranteed!

2. Budget

A frugal person always has a plan on how they plan to spend their hard-earned money.

This makes sure that spending is always below income.

While many people hate the term “budget,” it doesn’t have to be constricting. We like to call it a “Cents Plan.” You make a plan for your money.

Just like you make a plan for your time on the weekend. Same concept.

The more you save now, the greater freedom you will have later.

3. Cook Meals at Home

Cooking food at home costs at least 25% of eating out. While the convenience of eating out is nice, it comes at a monetary and wellness cost.

You can make healthy meals under $10 for six servings. And not be a slave in the kitchen.

Shop the outer area of the grocery store. The expensive stuff is in the middle.

Hint: Try to incorporate a meatless meal 1-2 times per week. Plant based meals are cheaper to make.

4. Shop Less Often

This goes for general shopping, buying groceries, and adding items to your Amazon cart. The more often you go, the more likely you are to spend more money.

Decide ahead of time when you plan to shop (remember that patience concept from earlier).

For example, to get groceries for our house. I plan two pickups per month at the local grocery store and then have organic produce delivered on odd weeks with Misfits Market. Then, Costco run every month to 6 weeks. (Mind you… I have two children that are hitting the pre-teen phase.)

For me, I have shaved 30% off my grocery budget by implementing the strategy to shop less often.

5. Use Cash for Key Categories

If you are tempted to spend more than you should in certain areas, then you need to look at using cash.

When cash has been spent, you must wait until you full up that envelope again.

This helps so much with overspending.

You can do this with the cashless envelope system as well.

6. Own Less Stuff

The more items you have, the more it cost to buy and maintain.

So, by owning less stuff, you are accomplishing one of the most frugal life hacks to save money.

You don’t even need to become a minimalist. You just need to own what you need and that is it.

If you don’t believe me, look around and pack up anything you haven’t touched in the past 30 days.

7. Don’t Buy New

Buying new can be expensive. The best example of buying new is cars, trucks, and SUVs. The price instantly goes down the second you leave the dealership.

If at all possible, always look for used items that you can get at a discount or even for free.

With online forums and groups, it is much easier to find used items.

Of course, there is a caveat to this life hack; there are some things that are worth the investment and should be bought new. Just watch for sales or discounts.

8. Check your Receipts

It absolutely amazes me how many times I can be charged inccorectly. You would think with technology that this wouldn’t happen, but it does.

It takes a quick thirty seconds to scan your receipts and check for errors.

Sometimes, it may be the warranty you declined or double charged for apples. Other times, the sales price not have been rung up correctly.

Don’t hesitate to ask for the correct price!

9. Review Insurance and Ongoing Subscriptions

This may seem like a mundane task to do, but you could save yourself money.

This past summer, our homeowner’s and auto insurance went up again. We shopped around and ended up saving $1800. The same is true for cell phone and cable service.

You have to call and ask for discounts.

More often than not, these companies want you to continue as a customer and will lower your rate.

Insurance Options:

Automated Options to Save Money:

10. Switch to Reusable Products

When you throw something out, you have to buy new again.

This can fall into many categories. However, here are the main things you can reuse and ditch the waste.

This is what you want to look for:

11. Drink Water

Nothing is more frugal than drinking water.

The costs of various drinks can be a drain to any budget.

If you don’t like your tap water, then you can invest in a cheap filtration pitcher or even an under-mount filtration system. This is the one we installed and have been very happy with!

12. Watch Out for Fees

There are so many little pesky fees that can add up. Some examples include shipping, account maintenance, service fees, banking fees, etc.

While $2-8 may not seem like much, they will balloon over time. Look for promo codes or alternative ways to skip the fees.

13. Cut Cable or Unused Subscriptions

If you don’t use, then don’t spend money on it.

You can’t save money if you spend on things that don’t matter to you.

This is hard for many of us to do because we like conveniences and we don’t want to be seen as different.

Ways to Cut Cable:

The key when cutting cable is not to replace it with more subscriptions that end up costing more.

14. Collect Your Pennies

A true life hack to get you ahead financially is to know your money.

You know where you money goes. You know when you spend it. When you save it.

Also, you will never leave money on the table. If you see a penny, you pick it up and save spare change. If you lose a dollar, you want to get it back.

This means you are actively looking for ways to make more money. You want more pennies to collect that will add to your net worth over time.

15. Free Things to Do

The last frugal life hack is to always look for free things to do.

Here is a little secret… having fun doesn’t need to cost money!! We have been trained that having fun costs money. But, it is so not true!

Some of the best things in life are free.

For all of you, here is a guide of over 101 things to do without money.

Which Frugal Life Hack Will Save Money for You?

Being frugal is a lifelong habit. Yes, there are quick wins you can have here and there. But, in the long run, these frugal life hacks will have the biggest bank for your time.

Learning how to live frugally and be happy is about understanding your priorities and how you want to spend your money.

If you are serious about learning how to be frugal with money, then plan a time to examine your finances. In less than 30 minutes, you will uncover things to change the trajectory of your spending and saving habits.

Just remember… pennies do add up. So, watch your pennies and watch your net worth grow.

Know someone else that needs this, too? Then, please share!!

Did the post resonate with you?

More importantly, did I answer the questions you have about this topic? Let me know in the comments if I can help in some other way!

Your comments are not just welcomed; they’re an integral part of our community. Let’s continue the conversation and explore how these ideas align with your journey towards Money Bliss.

Source: moneybliss.org

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HSBC has joined two other major lenders in reducing mortgage rates following hints of a summer base rate cut by the Bank of England.

Barclays cut the cost of its fixed-rate home loans for new deals on Tuesday, following an earlier move by NatWest.

HSBC’s cuts will come into effect on Wednesday, with brokers expecting more mortgage companies to follow suit.

However, these reductions are small in the wider context. Borrowers still face relatively high costs, with many paying significantly more in monthly repayments when current cheaper deals expire.

Average mortgage rates had been creeping up, driven by a lack of fresh competition between lenders during the election campaign.

The average rate on a two-year fixed deal stands at 5.96% according to the financial information service Moneyfacts. It said the average five-year deal had a rate of 5.53%.

“These moves [by HSBC and others] suggest that the recent edging up in rates is now unwinding and most cuts are being made in small steps,” said David Hollingworth, from broker L&C.

The interest rate on a fixed mortgage does not change until the deal expires, usually after two or five years, and a new one is chosen to replace it. Doing nothing would leave people on a variable rate, which can be very expensive.

About 1.6 million existing borrowers have relatively cheap fixed-rate deals expiring this year.

Although spring tends to bring more activity in the housing market, this may have been dampened as potential buyers wait for more political certainty.

Borrowers will also be watching for whether the Bank of England’s Monetary Policy Committee (MPC), which sets interest rates, opts for a cut at its next meeting on 1 August.

At the most recent meeting last week, there was a significant change in tone indicating a majority could vote for one.

Optimism about such an outcome may have led to the latest moves by major lenders. The banks may also be jostling for custom.

Andrew Montlake, from mortgage broker Coreco, said: “Lenders will be keen to kickstart a market lethargic from the election, hot weather and football.

“The country desperately needs the boost of a cut to relieve some of the financial pressures that have held back the economy and put borrowers under immense pressure.”

However, he said positive news about falling inflation may only be temporary, and could lead to more caution from the Bank.

Michelle Lawson, from Lawson Financial, said borrowers were “beleaguered” but more lenders could cut rates in the coming days.

Separate figures published on Tuesday by UK Finance, which represents lenders, showed a further drop in the number of people paying only the interest on their home loan, despite the tough current conditions for borrowers.

Source: bbc.com

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They say to never say never. But why?

Because if you say it, whatever you said would never happen typically happens. Go figure.

Well, speaking of, Fannie Mae chief economist Doug Duncan recently said barring a “catastrophic economic event,” not to expect mortgage rates to return to 3% in our lifetimes.

I wrote about it on Twitter and it garnered a big reaction, with most saying he’s right. And others asking how old he was…

My take was that when I hear things like “not in our lifetime,” I naturally expect them to occur sooner rather than later.

How Did We Get 3% Mortgage Rates to Begin With?

Before we talk about the possibility of mortgage rates being 3% again, let’s discuss how they got there in the first place.

After the early 2000s mortgage crisis led to the Great Recession between 2007 and 2009, the Fed took action to lower its own lending rate (the federal funds rate) to nearly zero.

This was done to increase economic output by encouraging banks to lend money and for consumers and businesses to take out loans.

Despite the Fed’s best efforts, the economy continued to contract, leading to the advent of an unconventional monetary policy called Quantitative Easing, or QE.

Without getting too wordy here, the Fed began buying long-dated treasuries and mortgage-backed securities (MBS) to stimulate lending and turn the economy around.

Thanks to a very large, new buyer in the market, bond prices went up and their yields (aka interest rates) plummeted, as did consumer mortgage rates.

By the end of 2011, the 30-year fixed fell just below 4%, per Freddie Mac, as seen in the FRED chart above. And in 2012, it was in the low-3% range.

The Fed’s QE program was launched in 2008 and ran all the way until 2020, thanks to COVID-19 requiring an additional round.

Effectively, it was the perfect storm of a zero-interest rate policy (ZIRP) coupled with enormous buying of agency mortgage-backed securities. They currently hold over $2.5 trillion in MBS!

This led to the lowest priced 30-year fixed mortgage on record, and many lucky American homeowners got their hands on one.

Could the Same Thing Happen Again?

Anything is possible, which is why I say never say never. But as Duncan noted, it might take a bit of a catastrophe. Or possibly a major geopolitical event. Or both.

Some wrongly claimed we needed a pandemic to see 3% mortgage rates, but if you study the mortgage rate timeline, that’s simply not true.

As noted, the 30-year fixed was sub-4% all the way back in 2011, nearly a decade before COVID-19 reared its ugly head.

Yes, the pandemic led to even lower mortgage rates, with the 30-year fixed falling to a record low 2.65% during the week ending January 7th, 2021, per Freddie Mac.

But all it took was a Global Financial Crisis (GFC) to get us to 3% mortgage rates. Easy-peasy (kidding).

This isn’t to say it’s right around the corner, but it’s clearly possible. Of course, these might be generational events.

So lifetime might be the wrong word choice here, but generation could be right. As in, not in this generation. But perhaps the next one.

If a generation is around ~30 years, this means many people could see this same thing play out again, though maybe not very soon.

However, things tend to move a lot quicker these days and some argue that we live in a low interest rate world now where a return to double-digit interest rates is unimaginable.

And even long-term average rates could be unthinkable to some given how high home prices are these days.

If you consider the average 30-year fixed mortgage rate over the past 50 years, it’s around current levels of just over 7%.

If we throw out the extreme 1980s mortgage rates, the long-run average is closer to 5.5%. But that includes the crazy low-rate years over the past decade…

How About 4% Mortgage Rates?

While I do agree with Duncan’s general sentiment that a return to a 3% 30-year fixed is unlikely, at least anytime soon, we could get somewhat close.

It wouldn’t shock me to see a 30-year fixed start with a ‘4.’ As in 4.99%, or something to that effect.

Heck, the home builders are still offering special mortgage rate buydowns that low at this very moment.

And if you’re willing to pay discount points at closing, if/when rates moderate as inflation falls, a 4.99% rate could be within reach.

Even without points, rates could get close to those levels if the economy cools rapidly and the Fed begins cutting its own rate again.

Remember, bad economic news is a friend to mortgage rates, so if unemployment spikes, and production/spending declines, rates could come down pretty quick.

At this juncture, many expect the Fed to begin cutting rates as their inflation fight wanes, which if the 10-year bond yield cooperates, could lead to a 30-year fixed closer to 6% by 2025.

And maybe even lower if mortgage rate spreads normalize. This alone could get some borrowers back into the high-5% range without paying a ton at closing.

Of course, that’s all speculation and nobody really knows for certain which way mortgage rates might go.

What Are Your Options If 3% Mortgage Rates Don’t Return?

Even if the 3% mortgage doesn’t return, there are various options to lessen your mortgage interest expense.

For one, there’s always buying down your rate, which involves paying discount points upfront for a lower rate the entire loan term.

This is a form of prepaid interest where you pay more today, but potentially save a lot more over the loan term. You just have to keep the loan long enough for it to make sense.

There’s also paying extra on your mortgage, which depending on how much more you pay each month, could lower your effective mortgage rate to something closer to 4-5%, or even 3%.

The more you pay toward principal, the less interest you pay, which makes your mortgage operate more like a low-rate home loan.

We’ve also seen a resurgence in assumable mortgages, which allow a home buyer to take on the seller’s loan as well.

Many millions of existing homeowners have mortgage rates in the 2-3% range, so it might be possible to buy their house AND snag their low-rate mortgage.

One new service trying to make this process easier is called Roam. And there are others like it out there too.

Finally, if you’re buying a new home, look out for special rate buydowns from the home builder’s lender that offer a below-market rate.

Or if you’re buying a used home, ask for seller concessions, which can be used to buy down the interest rate.

And remember, you’re not necessarily stuck with your rate forever. If rates go down, look into a rate and term refinance to take advantage.

Source: thetruthaboutmortgage.com

Apache is functioning normally

They say to never say never. But why?

Because if you say it, whatever you said would never happen typically happens. Go figure.

Well, speaking of, Fannie Mae chief economist Doug Duncan recently said barring a “catastrophic economic event,” not to expect mortgage rates to return to 3% in our lifetimes.

I wrote about it on Twitter and it garnered a big reaction, with most saying he’s right. And others asking how old he was…

My take was that when I hear things like “not in our lifetime,” I naturally expect them to occur sooner rather than later.

How Did We Get 3% Mortgage Rates to Begin With?

Before we talk about the possibility of mortgage rates being 3% again, let’s discuss how they got there in the first place.

After the early 2000s mortgage crisis led to the Great Recession between 2007 and 2009, the Fed took action to lower its own lending rate (the federal funds rate) to nearly zero.

This was done to increase economic output by encouraging banks to lend money and for consumers and businesses to take out loans.

Despite the Fed’s best efforts, the economy continued to contract, leading to the advent of an unconventional monetary policy called Quantitative Easing, or QE.

Without getting too wordy here, the Fed began buying long-dated treasuries and mortgage-backed securities (MBS) to stimulate lending and turn the economy around.

Thanks to a very large, new buyer in the market, bond prices went up and their yields (aka interest rates) plummeted, as did consumer mortgage rates.

By the end of 2011, the 30-year fixed fell just below 4%, per Freddie Mac, as seen in the FRED chart above. And in 2012, it was in the low-3% range.

The Fed’s QE program was launched in 2008 and ran all the way until 2020, thanks to COVID-19 requiring an additional round.

Effectively, it was the perfect storm of a zero-interest rate policy (ZIRP) coupled with enormous buying of agency mortgage-backed securities. They currently hold over $2.5 trillion in MBS!

This led to the lowest priced 30-year fixed mortgage on record, and many lucky American homeowners got their hands on one.

Could the Same Thing Happen Again?

Anything is possible, which is why I say never say never. But as Duncan noted, it might take a bit of a catastrophe. Or possibly a major geopolitical event. Or both.

Some wrongly claimed we needed a pandemic to see 3% mortgage rates, but if you study the mortgage rate timeline, that’s simply not true.

As noted, the 30-year fixed was sub-4% all the way back in 2011, nearly a decade before COVID-19 reared its ugly head.

Yes, the pandemic led to even lower mortgage rates, with the 30-year fixed falling to a record low 2.65% during the week ending January 7th, 2021, per Freddie Mac.

But all it took was a Global Financial Crisis (GFC) to get us to 3% mortgage rates. Easy-peasy (kidding).

This isn’t to say it’s right around the corner, but it’s clearly possible. Of course, these might be generational events.

So lifetime might be the wrong word choice here, but generation could be right. As in, not in this generation. But perhaps the next one.

If a generation is around ~30 years, this means many people could see this same thing play out again, though maybe not very soon.

However, things tend to move a lot quicker these days and some argue that we live in a low interest rate world now where a return to double-digit interest rates is unimaginable.

And even long-term average rates could be unthinkable to some given how high home prices are these days.

If you consider the average 30-year fixed mortgage rate over the past 50 years, it’s around current levels of just over 7%.

If we throw out the extreme 1980s mortgage rates, the long-run average is closer to 5.5%. But that includes the crazy low-rate years over the past decade…

How About 4% Mortgage Rates?

While I do agree with Duncan’s general sentiment that a return to a 3% 30-year fixed is unlikely, at least anytime soon, we could get somewhat close.

It wouldn’t shock me to see a 30-year fixed start with a ‘4.’ As in 4.99%, or something to that effect.

Heck, the home builders are still offering special mortgage rate buydowns that low at this very moment.

And if you’re willing to pay discount points at closing, if/when rates moderate as inflation falls, a 4.99% rate could be within reach.

Even without points, rates could get close to those levels if the economy cools rapidly and the Fed begins cutting its own rate again.

Remember, bad economic news is a friend to mortgage rates, so if unemployment spikes, and production/spending declines, rates could come down pretty quick.

At this juncture, many expect the Fed to begin cutting rates as their inflation fight wanes, which if the 10-year bond yield cooperates, could lead to a 30-year fixed closer to 6% by 2025.

And maybe even lower if mortgage rate spreads normalize. This alone could get some borrowers back into the high-5% range without paying a ton at closing.

Of course, that’s all speculation and nobody really knows for certain which way mortgage rates might go.

What Are Your Options If 3% Mortgage Rates Don’t Return?

Even if the 3% mortgage doesn’t return, there are various options to lessen your mortgage interest expense.

For one, there’s always buying down your rate, which involves paying discount points upfront for a lower rate the entire loan term.

This is a form of prepaid interest where you pay more today, but potentially save a lot more over the loan term. You just have to keep the loan long enough for it to make sense.

There’s also paying extra on your mortgage, which depending on how much more you pay each month, could lower your effective mortgage rate to something closer to 4-5%, or even 3%.

The more you pay toward principal, the less interest you pay, which makes your mortgage operate more like a low-rate home loan.

We’ve also seen a resurgence in assumable mortgages, which allow a home buyer to take on the seller’s loan as well.

Many millions of existing homeowners have mortgage rates in the 2-3% range, so it might be possible to buy their house AND snag their low-rate mortgage.

One new service trying to make this process easier is called Roam. And there are others like it out there too.

Finally, if you’re buying a new home, look out for special rate buydowns from the home builder’s lender that offer a below-market rate.

Or if you’re buying a used home, ask for seller concessions, which can be used to buy down the interest rate.

And remember, you’re not necessarily stuck with your rate forever. If rates go down, look into a rate and term refinance to take advantage.

Source: thetruthaboutmortgage.com