Money Management

Today’s mortgage rates are high. Read on to see what sort of drop might lead to an uptick in home purchases. 

In mid-2020, mortgage rates fell to record lows, and it led to a serious uptick in buyer demand. In fact, at one point, mortgage lenders were downright overwhelmed with applications.

But while buyer demand is still reasonably strong on a whole, it’s definitely cooled over the past year. And a big reason is that mortgage rates have been stubbornly high.

Mortgage rates have been stuck in the 6% range since the start of 2023. And as of May 4, the average 30-year mortgage rate was 6.39%, according to Freddie Mac.

That rate is higher than what many buyers today want to pay — especially with home prices still being elevated. But even a modest drop in mortgage rates might drive an increase in buyer demand — and a notable one at that.

Is 5.5% the magic number?

Today’s mortgage rates aren’t actually unreasonably high, historically speaking. The problem is that many home buyers got used to the almost ridiculously low mortgage rates that were offered during the latter part of 2020 and 2021.

Back then, you could easily sign a 30-year mortgage at around 3% if you had a good credit score. Today, even excellent credit may not get you below the 6% mark for that same loan. So it’s easy to see why a lot of people have held off on buying a home.

Meanwhile, a recent study by John Burns Research and Consulting, as reported by CNN, reveals that 71% of Americans are not willing to accept a mortgage rate above 5.5%. And 62% of Americans think that a “normal” mortgage rate, historically speaking, is one that’s below 5.5%.

The problem, though, is that we may not see mortgages offered at 5.5% for quite some time. And that means that a lot of buyers may end up sitting out the market for an extended period of time.

Should you sign a mortgage at today’s rates?

The mortgage rates we’re seeing today are definitely not a bargain. But if you can afford to buy a home and keep up with housing payments on it based on today’s mortgage rates and property prices, then you may want to move forward with an offer, even if it means signing a loan at a rate you’re less than thrilled with.

We don’t know how long it will take for mortgage rates to reach the 5.5% mark. But it could take years. And if you’re in a position to buy a home now, you probably don’t want to wait that long.

That said, one thing you should realize is that when you sign a mortgage, you’re not necessarily guaranteed to keep the same payments forever. It’s common for mortgage borrowers to refinance their home loans when rates drop.

Now again, we don’t know when that’s going to happen. But let’s say you sign a mortgage at 6.39% today, and in two years from now, rates start dropping notably. You might, at that point, be able to refinance to a mortgage at a rate of 5.39%. For a $200,000, 30-year loan, that’s $127 less per monthly payment.

You may prefer to sign a mortgage at 5.5%, rather than at the rates you’re seeing today. But holding out for a rate that low could mean missing out on a key opportunity to start building equity in a place of your own sooner.

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If you’ve been thinking about joining Costco, it pays to act quickly. Read on to see why. 

Many people join Costco for the massive savings involved. By getting access to bulk grocery items and household essentials, you can feed your family and take care of your home without racking up the same massive credit card bill you’d be looking at elsewhere.

If you’ve been thinking of signing up for a Costco membership, though, the time to do it is now. For a limited time, you can snag a $30 Costco gift card when you sign up for a one-year basic membership. Since that membership costs $60, you can effectively shave 50% off of its cost. But you’ll want to move quickly, since this offer is only available for a limited time.

A prime opportunity

There are many benefits to joining Costco. First of all, the products you’ll have access to will extend far beyond the selection at your local warehouse club store. You can take advantage of different deals at Costco.com, and you can also benefit from Costco’s different services, like its tire centers and pharmacies. And if you’re hoping to take a vacation in the near term, you can use Costco’s travel services to book a package at a discounted rate.

Best of all, you get all of this for just $60 a year. But if you sign up for a membership soon through GameSpot, you’ll receive a $30 digital Costco shop card you can redeem for Costco purchases. That basically means your first year of membership will only cost you $30.

Now to snag this promotion, your membership must be redeemed by Nov. 14. However, those pursuing this offer are encouraged to redeem their memberships within 30 days.

Once you redeem your membership, you should receive your Costco gift card by email within two weeks. From there, your gift card won’t expire, and you can use it online or at a local warehouse club store. You should know, however, that your gift card cannot be redeemed for cash — you have to spend it on some sort of Costco purchase.

Also, if you once had a Costco membership but no longer do, you can qualify for this promotion as long as your membership has been expired for more than 18 months. You can’t cancel your membership now, wait a few weeks, and sign up again to get a $30 gift card.

It pays to give Costco a try

If you’ve been on the fence about joining Costco, then you might as well sign up at a time when you can basically get $30 back in gift card form. Remember, too, that Costco stands behind not just its products, but its memberships, too. If you’re not happy with your membership, you can cancel it and get a proportionate refund.

But chances are, once you join Costco, you won’t want to cancel once you see how much money you stand to save in the course of your regular shopping. And you may find yourself turning to Costco for one-off purchases, whether it’s items for your home, gifts, or even your next pair of eyeglasses.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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The mean mortgage interest payment is $2,781 per year. Read on for advice on deciding how much mortgage you can take on. 

If you buy a house, chances are good you’re going to need to take out a mortgage to do it. Many homeowners currently have mortgages and, as a result, they are paying interest on their home loans to the bank every month for the privilege of being able to borrow money for their property.

If you aren’t sure how much mortgage interest is normal, it can be helpful to look at this data from the Bureau of Labor Statistics showing how much other homeowners are paying for their own mortgage loans.

Here’s what people are paying in mortgage interest

According to the Bureau of Labor Statistics, the mean amount of mortgage interest and charges in 2021 was $2,781 among all consumer units.

Some demographic groups pay much more mortgage interest than others, though. For example, the mean mortgage interest of those making under $15,000 was just $641, while the mean interest paid by those with incomes above $200,000 was $8,393.

Obviously, interest expenses go up as income does, both because more people within a higher income bracket are likely to own houses and because people with higher incomes tend to buy more expensive houses that come with higher mortgage costs.

How big of a mortgage loan can you afford?

While knowing the typical mortgage interest costs is helpful to get an idea of what people are paying to be able to borrow to buy a home, it’s ultimately important for each would-be buyer to assess on their own just how much they can afford.

In general, it’s best to keep housing costs below 25% of your income. This includes not just mortgage interest, but also the principal payments you’re making on your loan as well as taxes and homeowners insurance. By keeping total expenditures below 25%, you can avoid sinking so much money into monthly mortgage payments that you struggle to save for retirement or fulfill other financial goals.

The size of your down payment and your other financial goals are also going to affect how much house you can buy as well. You will need to put at least 3% down to get most loans, but ideally you’ll put down closer to 10% or even 20%.

RELATED: Mortgage Calculator

The more money you put down, the lower your monthly payments will be, the more home equity you start with, and the more easily you’ll be able to qualify for a loan at a competitive rate since the mortgage lender takes on less risk. If you put down at least 20%, you can also avoid being required to pay for private mortgage insurance that protects the lender in case of foreclosure.

By thinking about your down payment and the amount you can spend as a percentage of income, you can work backward from there to see how much house you can afford. You can also look at the total cost of your home loan, including interest expenses, and be sure you’re comfortable taking on such a large obligation in light of your other financial goals and plans.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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