An August 2018 analysis by Homebuyer.com used state-level data (median family income and median property price) to identify the best housing markets for first-time buyers in the United States in 2022. With today’s real estate market and its skyrocketing property values, it’s more crucial than ever to get the best available mortgage interest rate to help make your monthly payments manageable. As a result, it’s in your best interest to learn as much as possible about the factors that influence your mortgage interest rate.
Borrowers are still in luck right now. The average rate for a 30-year mortgage has risen from last year’s historic low. It’s been staying around 4%, which is still a very inexpensive mortgage rate. However, the final mortgage rate is what matters, and several factors play into it. Your mortgage rate is determined in large part by your own unique financial situation, but it also takes into account location-specific variables including the availability of lenders, the cost of housing, and any applicable local, state, or federal regulations.
How Homebuyers Can Save $200,000 With Today’s Low Mortgage Rates?
There are several compelling arguments that make it essential to lock in a low mortgage rate at this time. For mortgages with maturities of 15 or 30 years, even a fraction of a percentage point can have a significant impact on total interest paid and monthly payments. And when rates eventually do rise, as they inevitably will, homebuyers should expect to see increases of more than a few basis points.
Average mortgage rates peaked in 1981 at 16.63%, according to Freddie Mac, and by 2006, just before the recession hit, they had fallen to 6.41%. Interest at that rate would amount to $215,718 over the life of a loan for a property costing the typical $215,000 today, with monthly payments of $1,301. When compared to the average of 3.98% in 2013: The total interest paid would drop to $122,902, or about half what it is now, and the monthly payment would drop by over $250.
To what extent do factors local to a region influence mortgage interest rates?
Mortgage rates fluctuate for a number of interrelated reasons. Interest rates are influenced by a number of macroeconomic factors, including the prime rate, LIBOR, bond yields, inflation, and mortgage-backed securities. Mortgage interest rates may fluctuate from one region to another depending on a number of factors, including but not limited to borrower demand, local property prices, default rates, loan concentration, and unemployment.
To that end, where may one obtain a loan at the lowest possible interest rate? 6 of the 10 states with the lowest mortgage rates are in the Northeast.
The Midwest and the Northwest, on the other hand, account for six of the ten worst states in terms of mortgage rates. David Domhoff, a licenced mortgage planner, suggests that local property markets and, more especially, local home prices may be responsible for these developments. Domhoff explains that because of the low loan amounts in the Midwest, interest rates need to be higher to compensate for the expense of doing business, which is reflected in the lower rebate and yield on offer.
Because of more competition and greater loan amounts, interest rates are often cheaper along the beaches. Similarly, the law of supply and demand has a significant impact on mortgage rates in each region. Rates need to go down to attract borrowers when the local economy is ailing and the unemployment rate is high. In a similar vein, rising rates are compatible with rising buyer demand, which is likely to occur if the local economy is growing and creating more jobs. The charges that businesses charge their clients might also vary based on their perceived risk.
Bennie D. Waller, PhD, a professor of finance and real estate at Longwood University, has remarked, “Risk is the primary determinant of mortgage rates.” That example, the mortgage rate will be higher in locations where default is more likely. Comparable to how the national mortgage default rate fluctuated from region to region during the 2007–2008 recession, credit risk will likewise fluctuate throughout the country. CFA and portfolio manager Matt Shibata pointed out a factor in mortgages that are often disregarded: closing expenses. “Closing expenses include a wide range of geographical differences depending on state and county rules, fees, and taxes,” Shibata added. Since the APR (annual percentage rate) is the format that lenders must quote in, “these closing cost disparities are the principal drivers of the geographical diversity individuals observe in mortgage rates.”
Ranking of the Five States With the Best Mortgage Rates
Massachusetts – 0.14% lower
New York – 0.10% lower
New Jersey – 0.08% lower
North Dakota – 0.05% lower
Connecticut, Nebraska, Hawaii, and Florida – 0.04% lower