Mortgage Q&A: “What Time of Year Are Mortgage Rates Lowest?”
We’re all looking for an angle, especially if it’ll save us some money. Whether it’s stock market trends, home price trends, or mortgage rate trends, someone is always claiming to have unlocked the code.
Unfortunately, it’s usually all nonsense, or based on the belief that what happened in the past will happen again in the future.
Sometimes history repeats itself and sometimes it doesn’t. We probably only hear about the times this happens because it makes the person sound like a genius.
Now if you’re wondering what is the “best time of year to get a mortgage”, the answer is It is possible, And certainly better (and worse) times than others.
What Time of Year Are Mortgage Rates Lowest?
In fact, it’s very difficult to predict anything, even the weather, so when it comes to complex things mortgage interest ratesThe success rate is probably very low.
That being said, I set out to see if there were any mortgage rate trends we could glean from the available data using Freddie Mac’s historical mortgage rates, which go back as far as 1971.
with 50 years statistics At our fingertips, you’d think there would be some trends to see, right?
Were mortgage rates lower in some months, higher during others, or is it all random? let’s find out.
For the record, I looked at the monthly averages for 30-year fixed-rate mortgages over the past three decades to determine whether there’s a winning month out there.
I left out the older years (like the 70’s and early 80’s) because mortgage rates were not at the same level as they are nowadays.
The table above lists average mortgage rates by month. It has been freshly updated using data from 2021 and 2022 to provide the most current results.
Maybe You Should Be Shopping for Mortgages Instead of Holiday Gifts…
it turns out There’s a month when mortgage rates are at their lowest, And as you might expect, this is at a time when most people may not even be thinking about buying a home or refinancing an existing mortgage.
Yes, it’s December. You know, when people are more concerned with holiday shopping and traveling to see family then calling a mortgage lender.
Or can’t even think of doing anything super work-intensive like filling out a home loan application when it’s too cold.
This may explain why mortgage rates are at their lowest in December. Lenders give big discounts to consumers, if you remember when things are slow,
And December is always going to be a slow month for mortgage lenders, which probably has something to do with the discounting seen over the last 30 years.
That’s not huge, but having a mortgage rate as low as 0.25% can add up to big savings over time.
Keep track of mortgage rate sales throughout the year
- Mortgage lenders operate in the same way as any other type of business that sells products or goods.
- They price their loans based on expected profit margin and operating costs
- They may be willing to lower the price (or interest rate) if their business slows down.
- But they can keep rates artificially high if they’re doing too much business (or even too busy).
Like any other company that sells goods, there are “sales” at certain times throughout the year, and times when prices are marked up.
As you might expect, if a company is trying to move a product, in this case home loans, what do they do? They undercut the cost to conduct business.
Mortgage lenders are able to undercut the price, or rate, because they have margin built into their market rate.
This margin serves as their profit, loan operating cost. Sure, they may not earn as much per loan if they lower rates for consumers, but they can make up for it based on volume.
Instead of closing one high-priced loan, they may be happy to close three loans and earn more overall. So they have room to play with the rates a little bit.
They can adjust them lower when business is creeping up, and maintain or increase them when their phone won’t stop ringing.
How cheap can rates really be in a given month?
- Mortgage rates are measured in one-eighth of a percent (0.125%)
- which may or may seem like absolutely nothing when comparing rates
- But that small difference can become exponential as you make mortgage payments each month (possibly 30!).
- This explains why even a small difference in rate can amount to thousands of dollars over time.
Okay, so we know that rates change throughout the year, and even a small difference in rate can mean a lot. But how much can you really save?
Although not massive by any means, you may be able to get a .25% lower rate in December versus April. The same goes for October and November compared to spring.
If we’re talking about a loan amount of $300,000, a rate of 6% versus 6.25% is a difference of about $50 per month, or about $600 per year.
Keep your mortgage for a decade and you’ll pay about $5,000 more over that period.
Are you paying more for your home loan and house in April?
- The most common time to buy a home is in the spring, usually the month of April
- This is when most potential buyers get serious and make offers.
- This is even as more home sellers finally decide to list their properties.
- But it may be cheaper to buy a home during the fall or winter when things are slower.
Coming to April, that month has historically been a prime time to buy homes, which explains the lack of discounts.
The same goes for buying a home during April — it’s much less common to see price decreases during the spring than it is during the fall or winter.
It all begs the question; Should we buy a home when prices, competition and interest rates are lowest? Perhaps.
Only one problem – there’s even less available inventory in the fall and winter months. But if you find something you love, this might be a good time to nab a deal.
In other words, you should always keep looking, even when it’s not the ideal time to move on.
if you’re refinance a mortgageThe odds will be less in December as you already have a house.
To sweeten the transaction, the lender probably isn’t as busy, so you’ll move through underwriting much faster. And you might get a little more attention from your loan officer.
Should I Wait Until December to Get a Mortgage?
In short, probably not. While December had the lowest mortgage rates on average over the past 30 years, there were several years when rates were higher in December than in other months.
Take 2018, where the 30-year average was 4.03% in January and 4.64% in December.
The same goes for 2015 and 2016, when rates were significantly higher at the beginning of the year than in December.
Last year also had a bad December, with the 30-year average settling at 3.45% in January and 6.36% in December.
However, the 30-year average in 2020 stood at 3.31% in April and 2.68% in December, a difference of 0.63%. This can equal thousands of dollars in savings.
Overall, you’d probably be better off paying attention to what’s going on in the economy if you want to predict the direction of mortgage rates.
The trend (going up or down over a period of time) may be more important than the month of the year.
Simply put, bad economic news typically drives mortgage rates lower, while positive news drives interest rates higher.
Except for the time of year, you can Save even more on your mortgage Simply by collecting quotes from multiple lenders.
Ultimately, time doesn’t seem to be the biggest driver of rates, nor is it something most of us can control.
(picture: marco verch,