The Lowest Mortgage Rate ... Ever!

Mortgage rates hit historic lowAmerica reached a milestone on Thursday: The lowest home mortgage rate in history.

According to mortgage financier Freddie Mac, interest rates on a 30-year fixed mortgage dropped below 4% -- to 3.94% to be precise -- for the first time ... ever. And if you can scrape together the cash to manage a 15-year fixed-rate mortgage, the deals are even cheaper -- as low as 3.26%.

Today, we can say, it has literally never been cheaper to finance a home.

But There's Another Important Milestone

Simultaneous with Freddie Mac's astounding announcement, The Wall Street Journal reported that U.S. home ownership (defined as the percentage of owner-occupied housing relative to all occupied housing units) declined 1.1% over the past decade.

Spread over 10 years, that doesn't sound like much, and ownership rates are still the second-highest in history. But it's actually the biggest drop we've seen since the Great Depression.

What Does It All Mean to Homeowners and Home Shoppers?

With stricter bank lending standards making it harder to get a loan, and a weak economy making it harder to afford a home, demand for mortgages is drying up. And as you probably learned in Economics 101, lower demand makes for lower prices.

If, however, you're one of the lucky few who can afford a house in today's economy, it's never been cheaper to finance. For that matter, if you've already bought, now might be a good time to hit up your banker for a refinancing.

But what if you're one of the even luckier few who not only has money for a house, but a bit of extra cash available for investment? Here's where things get a bit trickier.

What Does It Mean to Investors?

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Low mortgage rates probably bode poorly for the banks who make home loans, so I'd be leery of investing in Bank of America (BAC) or JPMorgan Chase (JPM) until this trend reverses. I'd furthermore counsel against rushing into an investment in PulteGroup (PHM) or KBHome (KBH) on the theory that low rates will make their businesses boom. The facts just aren't supporting that theory.

A better idea -- if you've got the balance sheet to work it -- might be to lock in a lower rate on your current home, then buy a second home at the same low rate. Rent out the first, and live in the second. Because even if people aren't buying houses, chances are they still want a roof over their heads. Today's low rates give you a great chance to play landlord.

Motley Fool contributor Rich Smith does not own shares of any companies named above. The Motley Fool owns shares of Bank of America and JPMorgan Chase.

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The interest rates and fees are all determined based upon home value and what loan you decide to go with. I know a lender that is very competitive in regards to rates and fees.

June 20 2013 at 4:12 AM Report abuse rate up rate down Reply
chuck e

Rates are low but with good credit I cannot get a mortgage. Does not do me any good

October 10 2011 at 7:41 AM Report abuse rate up rate down Reply

Homeownership is an investment--yes it actually is--if you know what you are doing. The low interest rates and the low prices are great for home buyers, not just house buyers.
The family home. (we used to know this) Buy the house on ONE income. 1/4 to 1/3 max of the income of the most stable job partner. Shop for well built with a lot large enough to add on, or a pool...--check this with the city and county first. Buy the best house for your money in a neighborhood of homeowners. If you can choose a town, get one in a University town. Take a mortgage length to match your retirement age. If you are under 40, go for the 30 year. With the one income covering your mortgage, property insurance, taxes, utilities, then with your second income, you can enhance the house, buy fun stuff, take vacations, save. Your house is a big part of your comfort in retirement. Your paid for house is also family security. If you want to buy a vacation house, also, pay cash. You can go in with friends or family and contract to buy them out one by one.
Pass it on. When you are no longer in your home, keep it in the family. Keep a term life insurance policy that will pay off the home in case you die sooner than later which is also security for your spouse.
Houses do belong to families for 100 years and more. Maintain your home with that in mind. If your job makes you move, its in a college town, there will always be renters or college age relatives.
My kids thought I was crazy to do this, until they had to sell or lose their huge two income homes. In their starting-over middle age with kids ready to launch, they understand. They feel more secure knowing my house will be passed down as they retire. My now empty rooms can accomidate the grandkids that choose to attend the university. And there is that warm vacation home if I want to move sooner.

October 09 2011 at 3:48 PM Report abuse rate up rate down Reply
1 reply to MyOpinionOnThis's comment

You do have it all figured out don't you? The only problem is you'll probably be dead so you'll never get to see if your perfect plan really worked out the way thought it would.

October 10 2011 at 2:19 PM Report abuse rate up rate down Reply

This is pure horse crap.

October 09 2011 at 3:38 AM Report abuse +2 rate up rate down Reply
Dolores Keo

From 2000 to 2010, the national housing inventory increased by 13.6 percent, or 15.8 million units.

October 08 2011 at 11:29 PM Report abuse rate up rate down Reply

yea thats nice if youre one of the few in america who still has equity in there home,try to finance if your even or negative.

October 08 2011 at 11:41 AM Report abuse +1 rate up rate down Reply