Over the past two years, fixed mortgage rates have been the lowest they have ever been since Franklin D. Roosevelt came out with Fannie Mae in 1938.
There is only one reason why fixed mortgage rates dropped to the levels that they have been, and that is because of the COVID pandemic. Now that COVID is getting under control and we are at the tail end of the pandemic journey, fixed mortgage rates are back to where they should be. However, we are seeing panic from new buyers, and from homeowners looking to take cash out for home improvement or debt consolidation, because of these “high rates.”
The fact is, mortgages today are still some of the lowest 15-year and 30-year fixed rates in history.
It’s important to realize that (prior to COVID) in October 2018, fixed rates were at 5.25%, which is basically within a hair of where fixed mortgage rates are now. So we are actually on par for where rates should be; however, with the last 2 “COVID years,” we got spoiled with those steady rates in the 2s and 3s.
I recently surveyed 50 people and asked, “Would you want to go through another 2 years of COVID lockdown, hospital treatment shortages, loss of life, etc., in order to get fixed mortgage rates back to the 2 and 3% range?” Of those surveyed, 100% said, “No way, not a chance.”
Knowing why fixed rates got so low, and realizing that fixed rates are currently exactly where they should be (5% to 6% range), I think we can all take a breather and feel comfortable knowing that mortgage rates are still historically low and that this is still a great time to lock in an incredible rate.
Recently, a member of the Federal Reserve said that fixed mortgage rates in the 7.5% range are in the Fed’s comfort zone. So we have to assume that that is where we will gradually head to. Being that we are in a high-inflation environment, if our economy stays on this path, we could see fixed mortgage rates up another 1-2% by the end of 2022. When you take that into consideration, you will have to agree that today’s mortgage rates are a lot more attractive than most people think.
Whether you are looking to purchase a new home or take cash out to make improvements on your current home, most people have a timeline of 20 to 30 days to their closing. Your goal is not to compete and compare with the “COVID rates” that are in the past, because that is a battle you cannot win. Your only goal is to lock in on the best day of your purchase contract period or in the days leading up to your refinance. Putting together a strategy for locking in a rate on the best day of your contract period is all you can control.
Although we have had a steady rise in fixed mortgage rates since February, we still get those days and weeks where rates turn around and actually get better. If you lock in on the best day leading up to your closing, regardless of what that rate may be, you will win.
Ryan Paton is president of Capitol Lending Group, with 22 years of history helping South Floridians get the best residential mortgage available.