Studies say: Home prices up, mortgage costs down. Don’t miss this rare opportunity

October 7, 2019 - 5 min read

Pricier homes, cheaper mortgages — the illogical becomes logical

Even with mortgage rates around their lowest levels in years, affordability remains a top concern for home buyers.

A recent poll shows that most people believe home prices are on the rise — and they’re not wrong. Median home prices went up by 5% between August 2018 and August 2019.

When prices rise, many consumers believe it’s not a good time to buy anything, let alone a house.

However, potential homeowners might be missing out on a prime buying opportunity. Because despite a rise in home prices, monthly mortgage payments have actually gone down year-over-year.

The main reason for this improbable shift? 2019’s near-record low mortgage rates.

Verify your eligibility for a historically low rate. Start here

Despite rising home prices, the month-to-month cost of homeownership is actually falling

According to a home price index study conducted by the Federal Housing Finance Agency (FHFA), home prices rose by 5% between August 2018 and 2019.

With the median sales price of a home rising in many regions across the U.S., you would think mortgage payments would follow suit: The higher the sales price, the more money you need to borrow, which typically means a bigger monthly payment.

However CoreLogic, a leading provider of real estate analysis, recently released a “typical mortgage payment” study showing that the average mortgage payment in the U.S. is at its lowest level in years.

Monthly mortgage payments are currently at their lowest levels in nearly three years, according to analytics firm CoreLogic.

So, why are mortgage payments bucking conventional wisdom?

First, because interest rates on mortgages are at historically low levels. Rates haven’t been this low since October of 2016.

Second, home price gains across the nation are actually slowing down. The 5% year-over-year rise reported by the FHFA is significantly lower than gains the housing market experienced throughout 2018.

Around this time last year, home prices rose almost 8% year-over-year.

The bottom line is that home price appreciation right now is not enough to offset the significant savings you can get from such low mortgage rates.

Verify your new rate today. Start here

How a 1% lower interest rate makes up for a 5% higher price tag

Rates today are hovering around 3.6-3.7%.

During the same time last year, Freddie Mac reported an average interest rate of about 4.7% on a 30-year, fixed-rate mortgage.

Thanks to this drop in interest rates, it may be cheaper to buy a home today despite the 5% higher price tag. Here’s where the illogical becomes logical:

Imagine you took out a 30-year, fixed-rate loan on a $250,000 home at last year’s rates — 4.7%. After a 10 percent down payment, your monthly payments for principal and interest on this loan would total just over $1,200 according to The Mortgage Reports mortgage calculator.

Now imagine you bought the same house this year, at $262,500 — but with a 1% lower interest rate of 3.7%. Assuming you still make a 10 percent down payment, monthly payments for principal and interest come out just under $1,200.

Home price$250,000$262,500
Interest rate4.7%3.7%
Monthly payment for principal and interest$1,263$1,188

It’s clear how much rates impact affordability. Just 1% lower interest can make up for a $12,500 rise in home prices year-over-year.

And there’s more good news for would-be home buyers.

CoreLogic expects typical mortgage payments to fall another 4.4 percent over the next 12 months. This, in spite of an expected home price increase of 4.5 percent during the same time.

With mortgage rates so low, is it time to refinance?

When mortgage interest rates fall, many homeowners ask themselves if they should refinance their existing loan.

In most cases, the answer is yes.

If today’s rates are lower than your original rate, and you can save money on your monthly payment, it’s probably worth it to refinance.

This will be the case for many homeowners who bought or refinanced in the last few years. For example, if you locked in your rate at 4.7% last year, you could shave nearly a full percentage point off by refinancing at today’s rates.

Depending on your loan amount, you could reduce your monthly mortgage payment by $100 or more. If you like to think long term, you could save more than $35,000 in interest payments over the life of a 30-year, fixed-rate mortgage.

Use our refinance calculator to see what your monthly mortgage payment might be at today’s rates, and get an estimate of how much you could save over the life of your loan by refinancing.

Compare refinance rates from major lenders. Start here

Save even more on your mortgage by getting closing costs down

There’s one tried-and-true method for getting your mortgage payment down: Compare rates and closing costs from multiple lenders, and find the best deal for your situation.

However, it’s worth considering that at the end of the day, banks and mortgage lenders want your business. That means you might have some leverage to negotiate closing costs.

On average, borrowers pay around 1-5% of their loan amount in closing costs. And many borrowers roll closing costs into the loan, which can increase their monthly mortgage payment significantly.

For example, if you took out a $300,000 loan and closing costs came out to just 1.5%, you’d pay $4,500 — either right off the bat or spread out over your loan.

It’s worth shopping around for lenders that offer low- or no-closing-cost mortgages or are willing to lower their fees. Paying a few extra bucks per month in closing costs might not seem like a lot, but over the life of a 30-year loan, even the smallest fees add up in a big way.

Thinking about buying or refinancing? Take these steps now

Everyone’s financial portfolio is different. What might be a good reason for one person to buy a house today might not make sense for another.

However, the time is ripe for anyone ready to make the leap on a home purchase. Historic mortgage rates compared with fall weather could mean discounted rates and home prices for many.

So if you’re on the verge of buying your first home — or upsizing to your dream home — now could be an ideal opportunity.

Time to make a move? Let us find the right mortgage for you

Larry Phillips
Authored By: Larry Phillips
The Mortgage Reports contributor
Larry is a mortgage and real estate writer with over 15 years of experience working in the mortgage industry as an underwriter. His work has appeared in publications such as LendingTree, Bankrate, Student Loan Hero and HeroPay.