I can tell you exactly what interest rates will do, goes an old joke. They’ll go up, go down or stay the same.
A better predictor is Freddie Mac, which says they’ll stay about the same for awhile. (Freddie Mac, chartered by Congress to in 1970 to allow lenders to put more money into mortgage lending, Freddie Mac’s full name is the Federal Home Loan Mortgage Corporation.)
According to Freddie’s chief economist, gross domestic product grew only 0.1 percent the fourth quarter of last year, so “inflation remains at bay and consequently mortgage rates low,” said Frank Nothaft.
How low? They’re still hovering near 65-year record lows. The first week in March, rates for a 30-year mortgage averaged just below four percent. Amazingly, this is a FIXED RATE. If the mortgage interest rate goes to 18 percent, as it did during Jimmy Carter’s presidency in the early 80’s, it won’t change a homeowner’s low-cost loan.
Fifteen year mortgages averaged about three-quarters of a percent lower than 30-year mortgages, but the shorter term means payments will still be higher than a mortgage spread over 30-years.
So if you can afford payments on the 15-year mortgage with lower rates, should you opt for that mortgage? Maybe not. Although the interest rate will be slightly higher, you can always turn a 30-year mortgage into a 15-year mortgage – or any term you like – by making extra payments, although that takes some financial discipline.
But if money gets tight, making the lower payments might provide much-needed relief. Because mortgage interest is deductible for taxpayers who itemize, the actual cost of the mortgage money is even less than today’s low rates, after taxes. If you’ve got a better place to put the money – either investing at a higher rate than the mortgage or paying off higher interest rate debts – you’re basically using government sponsored cheap money to make money for yourself.
And finally, this is being written March 14th, so while me and Freddie Mac’s chief economist say interest rates will be steady in the near term, they will surely have changed. Or gone up. Or gone down.
Hope to hear from you, whether buying, selling or renting.