Low mortgage interest rates boost summer home buying, refinancing

by Mike Sante on May 24, 2013

We've never started summer with mortgage rates this low.

The average cost of 30-year, fixed-rate mortgages — the most popular way to finance a home — is nearly a quarter point lower than it was this time last year and a full point lower than in June 2011.

The average cost of 15-year mortgages, jumbo loans and adjustable-rate mortgages fell to new record lows in a survey of major lenders in early May.

The less you pay in interest, the more cash you'll have to pay down the principal or invest in other things, such as your retirement plan at work. So anything you can do to reduce the cost of your mortgage can help you build real wealth and financial security.

The Federal Reserve has held borrowing costs at historic lows until our lethargic economy is growing faster and creating more jobs.

Our best guess is that you'll be able to take advantage of these incredibly cheap home loans all summer.

But with the conflicting signals we're now getting from the Fed, it's impossible to predict what will happen when the leaves start turning this fall.

Savvy borrowers with decent credit can expect to pay a quarter point to half point less than these average rates.

Search our extensive database of the best interest rates offered by hundreds of lenders for better-than-average deals.

Where you live will have a lot to do with how much you pay.

The cheapest 30-year loans are in Detroit, where the average cost of a 30-year loan is just 3.58% and Cincinnati (3.66%).

The most expensive loans are in Tampa, where the average rate is more than three-quarters of a point higher at 4.42%, and Atlanta (3.98%).

Click here to find the average rates for all 25 major cities we track. You’ll find the data for fixed-rate loans of 30 and 15 years and 5/1 adjustable-rate mortgages (ARMs).

Rates this low mean the payments for principal and interest for the average 30-year loan are a very affordable $460 per month for every $100,000 borrowed.

Use our mortgage calculator to see what your monthly principal and interest payments would be on any fixed-rate loan.

Even more important, lenders appear to be making it a little easier to qualify for loans this spring.

The average FICO credit score for home buyers whose conventional loans closed in April was 761, three points lower than in April 2012, according to Ellie Mae Inc., a California-based mortgage technology firm whose software is used by many lenders.

The average FICO score for homeowners who refinanced through a conventional loan was 757, a full 10 points lower than last April.

How long we'll enjoy such low rates depends on the Federal Reserve.

Since September, the Fed has been buying about $85 billion in long-term debt a month — $45 billion in Treasury bonds and notes, and $40 billion worth of mortgages.

When the Fed buys bonds backed by thousands of home loans, it essentially floods the market with money, pushing down the cost of financing a home.

The big question is how long will it continue to do that?

The Fed has now purchased more than $3 trillion worth of government and government-backed mortgage debt since the financial crisis hit in 2008 — and that's a lot.

Earlier this year, the Open Markets Committee began discussing when to end those purchases, with some members pushing to cut back this summer, while others urged the Fed to stay the course at least until fall.

But after its May meeting, the committee released a surprising statement that said it was actually willing to buy more debt if inflation remained low and the economic growth remained slow.

That's the first time the Fed has indicated it's willing to boost its asset purchases and makes it even more difficult to predict what the bank might be doing six to nine months from now.

Then in late May, Fed Chairman Ben Bernanke told a Congressional committee that, "We could in the next few meetings take a step down in our pace of purchases."

So where's the Fed headed? Your guess is as good as ours.

All we know for sure is that the Fed's course will go a long way towards determining how much we'll pay to finance a home over the next year.

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