By AnnaMaria Andriotis
Mortgage rates hit an all-time low today, but experts say home buyers won’t necessarily see additional savings.
According to data released today by Freddie Mac, the average rate on a 30-year fixed-rate mortgage dropped below 4% for the first time, to 3.94%. Lower mortgage rates, of course, should theoretically translate into bigger savings for borrowers, but some experts say they still aren’t getting the lowest rates possible. For example, the lowest rate offered by LendingTree’s network of mortgage lenders is 3.5% on a 30-year mortgage, but the average rate actually given to their borrowers is 4.28% — nearly the widest spread since the firm starting tracking the data in February 2010. On a $300,000 30-year mortgage, the monthly payments end up costing around $134 more, or roughly an extra $48,000 in interest payments over the life of the loan.
As we’ve previously reported, most lenders aren’t keen on giving the lowest mortgage rates largely because they don’t need to. There’s still plenty of demand for refinancing given the low rates. On top of that, they say lowering rates too low could lead to extra business they can’t handle now, given the industry’s downsizing since the housing crisis. This week, Bank of America, for example, told SmartMoney.com it’s looking to make mortgages, but not at any cost.
Separately, lenders haven’t loosened their tight requirements for those lower mortgage rates. The best rates are given to borrowers who have high credit scores, sizeable down payments and low debt levels – a small demographic group given the current economy and sinking home values.
Even as mortgage rates drop, the housing market is likely to remain tepid, says Jack McCabe, an independent housing analyst in Deerfield Beach, Fla. After all, mortgage rates have been hovering near historic lows for months and yet home sales haven’t budged, he says. As long as home values continue to drop and foreclosures increase, says McCabe, it will take more than super-low mortgage rates to jumpstart the housing market.