Monday, October 24, 2016

Illinois Mortgage Rates: Where are they now? Where are they going? Why does it matter?


Mortgage rates in the state of Illinois and throughout the rest of the country are at record lows. According to the Freddie Mac Primary Mortgage Market Survey, the 30-year fixed rate ended September of 2016 at 3.46% with 0.5% in points. The lowest months ever recorded in the 45-year history of this survey were November and December of 2012. The rate recorded then was 3.35% with 0.7% in points. So basically current interest rates are only .11% higher than their all-time historic lows.  

Why do mortgage rates matter? Mortgage rates have a large impact on housing affordability. For every 1% increase in interest rates, you lose approximately 10% in mortgage amount and home price. As an example, the principal and interest payment (P&I) on a $300,000 30-year fixed mortgage at 3.5% is $1347.13 per month. If that rate goes up to 4.5%, you could only borrow $266,000 if you wanted to keep your payment at $1347 per month. 

If you have $30,000 for a down payment, that means you could only purchase a home for $296,000 at 4.5% compared to $330,000 at 3.5% for comparable payments. So the rate you pay for a mortgage can have a big impact on how much home you can purchase. Check out how interest rates have decreased over the last 30 years. As you can see, the payment difference is significant: 

Month / Year

Mortgage Interest Rate

Monthly Payment

(based on $300,000 loan)

October, 2016

3.50%

$1,347.13

October, 2006

6.36%

$1,868.67

October, 1996

7.92%

$2.184.59

October, 1986

9.98%

$2.628.28

Where are mortgage rates going? While predictions can sometimes be worthless, most experts expect rates to gradually increase in 2017. The MBA (Mortgage Bankers Association) predicts that 30 year fixed rates will climb to 4.2% next year.  Although that is only a slight increase by historical standards, it will still impact housing affordability for new home buyers. And if home prices go up another 5%, that will also impact overall affordability. 

Is now the right time to buy? Purchasing a home is a large investment and requires careful planning and consideration. You have to make sure your financial house is in order, have save sufficient funds for down payment and closing costs (at least 5% of home price), and be sure you want to commit to a home and a mortgage payment for the foreseeable future. But, with rates as low as they are and home prices just now climbing back to where they were ten years ago, it is at least a good time to really think about it.

Do you have questions or need a preapproval? Please contact us here or at 708-531-8388 if we can help in any way.  

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