We all know mortgage rates are low, but this is seemingly ridiculous.
The New Hampshire Housing Finance Authority is currently offering a mortgage rate as low as 3.25% on a 30-year fixed-rate mortgage.
And that’s with as little as 3.5% down (FHA loan). Of course, there are several strings attached. There are income and purchase price limits in place, and the property must qualify for the financing.
Only certain homes in certain areas are eligible, and underwriting is probably pretty darn strict, but it still illustrates how low interest rates have fallen in recent weeks and months.
But is the rate really as low as it appears?
While the NHHFA (possibly a made-up acronym) is pitching the 3.25% rate, the APR is actually significantly higher. In fact, it’s 4.158%.
So it’s not necessarily as low as it seems. But the APR does factor in private mortgage insurance, and likely everything else that you must pay at closing.
There’s a problem with APR though – it varies so much from lender to lender that it’s not always possible to get an apples-to-apples comparison when mortgage quote shopping.
For instance, over at the Zillow Mortgage Marketplace, the best advertised quote delivered today was a rate of 3.875% on a 30-year fixed.
The APR was 4.018%, lower than the 3.25% rate offered by the NHHFA.
The New Hampshire deal only requires a 3.5% down payment, and borrowers can even receive a grant so long as they bring in at least one percent of their own funds.
The fees on the Zillow quote are probably also smaller/fewer, which drives down the APR, but who knows exactly what’s being included.
Lowest Rate Not Always the Best Deal
So the takeaway here is that the lowest mortgage rate doesn’t always equate to the best deal.
And it’s only a matter of time before someone comes out with a 30-year fixed at 2.99% or something similarly outrageous.
Just make sure it’s actually a good deal for you. What I mean by that is that the super low rate actually benefits you.
If you don’t plan to pay off your mortgage or stay in your home long term, buying down an interest rate to a psychological level doesn’t make a lot of sense.
Sure, you can brag to your neighbors that you’ve got the lowest rate in history, but you may have wasted money obtaining it.
And a slightly higher rate may make more sense if your money is better invested somewhere other than housing, somewhere more liquid.
Finally, when you’re buying down your interest rate, be sure to find a certain point where the cost and the associated rate make the most sense (do the math!).
You probably won’t want to pay an extra or point or two to lower your rate just a .125 or a .25 of a point for bragging rights alone.