Hot mortgage rates will warm up the holidays for home buyers

House on stack of bills

Here's something to be thankful for: Near record-low mortgage rates can mean big savings for you and your family.

If you're thinking of buying a new house or condominium, you've picked a historically great time to look for a home loan. If you've been waiting to refinance your existing loan, your wait is over.

Here's just how cheap things have gotten: We've found 30-year, fixed-rate loans that cost as little as 3.875%, with no points and application fees of less than $2,000.

That's an interest rate few would have believed possible just a couple of years ago.

Of course, average rates are shockingly low, too.

One of the well-known types of home loans we track hit a record low in November, and other types of mortgages are hovering just above their all-time lows as well. Our most recent mortgage rates survey will show you how much average home loans cost this week.

Seattle has the cheapest home loans of the 25 cities we track, with an average rate of 4.01%. Cleveland has the highest average interest rate of 4.50%.

Find out what rates are available in your target area by searching our extensive database of the best rates from hundreds of lenders.

How much savings can you expect from today's home loans?

Compare this month's average 30-year, fixed-rate home loan of 4.24% to the 4.62% average of a year ago.

The principal and interest payments on today's home loan would be about $491 for every $100,000 borrowed. Last year's home loan would cost about $514 for every $100,000 borrowed.

But you should be able to find a loan much cheaper than the average.

Use our mortgage calculator to see what your payments would be for any fixed-rate loan.

You'll see huge savings not only by taking on a home loan today, but your dollar will be stretched even further because home prices have been driven down by about a third from their 2006 highs.

That decline is something to think about if you believe jumping in the market now is a great investment.

Indeed, buying a home has great value, but treating this purchase like a 401(k) account or other retirement investment is a bad idea now -- and when the housing market recovers.

During the housing bubble years, many people did treat their homes as investments, and those who managed to sell while prices were climbing may indeed have walked away with the investment gain of a lifetime.

We all know what happened to the people who didn’t have as much luck with their market timing.

It's been a painful lesson to learn that home values don't always increase. Some who counted on their homes for retirement savings might not be left with enough to remain financially secure.

"Most people think of their home as an economic asset," said Josh Patrick, a certified financial planner with Stage 2 Planning Partners in South Burlington, Vt. "We work with our clients to disabuse them of this idea. A home is an asset that drains cash."

However, we’re not just advising against treating your home as an investment because of what happened when the bubble burst. We’re saying it because in any market, home ownership has numerous hidden costs that other types of investments don’t.

"People often don't calculate the transaction costs of buying and selling a home and the impact it can have on their return on investment," says Timothy G. Parker, chartered financial analyst and partner with Regency Wealth Management in Midland Park, N.J.

When you buy a home, you have to pay closing costs that often amount to 2% to 3% of the purchase price.

When you sell, you have to pay your real estate agent a commission of 6% of the sales price. These fees are standard in real estate, but you almost have to go out of your way to pay this much for investments like stocks, bonds and mutual funds.

You might be able to eliminate some housing transaction costs by negotiating your broker’s commission when you sell and convincing the seller to pay your closing costs when you buy.

On the other hand, when it’s time to sell, potential buyers might expect you to pay their closing costs. And if you’re moving from one home to another, you’ll have to pay closing costs for the loan on your new home.

The bottom line: Treat your home like the castle you live in, not as a piggy bank.

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