In Massachusetts, the current average for a 30-year fixed-rate mortgage is 4.53%. The 15-year fixed-rate averages at 4.02%, while the 5/1 adjustable-rate mortgage (ARM) average is 3.84%.
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Mortgage rates are always changing in response to market movement and adjustments in monetary policy. Sometimes, this makes it hard to know whether it's the right time to refinance or borrow for a new home. We studied home loan rate trends and averages in the Bay State to help you understand what's going on and how to search for a good mortgage.
How Much Do Massachusetts Mortgage Rates Vary?
At the moment, Massachusetts home loan rates have a spread of 100 basis points. For a 30-year mortgage, rates can range as low as 4.13% or up to 5.13%. To put these rates in real terms, we can apply them to a hypothetical purchase.
If you had a mortgage balance of $180,000 to repay over 30 years, you'd see a difference of $34,476 in total interest between the highest and lowest rates. Each month, that would make a difference of $96. Though closing costs and service fees are also important, these numbers show that there are significant financial stakes in finding the right mortgage rate.
Comparing Home Loan Rates by Bank
Mortgage rates can also vary depending on where you get your quote. In Massachusetts, the range of possible rates among the state's largest banks was wider than usual.
In most states, the largest mortgage lenders tend to match each other closely in rate, but the market in Massachusetts proved to be more diverse. Applied to the scenario given above, the spread between the highest and lowest rate results in a monthly difference of $77 in principal and interest. Over a full 30-year amortization schedule, this expense gap widens to $27,400.
Are Home Loan Rates Rising in Massachusetts?
Mortgage rates in Massachusetts and across the rest of the country may not rise as much as quickly as previously anticipated for 2019. The Federal Reserve's Open Market Committee (FOMC) recently announced that it would "be patient" and adopt a data-dependent approach when considering rate hikes in the coming year.
This marks a step away from the previous forecast at the end of 2018, when the FOMC last raised the target rate by 25 basis points. The current target range for the fed funds rate is between 2.25%-2.50%. The federal funds rate is the overnight borrowing rate that banks pay to fund their operations, and is partially correlated with the interest rates on consumer loans and deposit accounts, the FOMC's periodic announcements are viewed as indicators of rate trends across the United States.
For shoppers in Massachusetts, the news of steadying rates may be met with a sigh of relief, especially in front of the upcoming homebuying season. During periods of rising rates, borrowers often rush to lock-in financing costs before interest rates get too high. With the FOMC announcing its intent to closely monitor market conditions before proceeding with future rate hikes, homebuyers can take comfort in the knowledge that borrowing costs are less likely to skyrocket while they're searching for the right home.
Comparing Home Loan Rates in Massachusetts Cities
Our analysis of rates also covered local conditions in Massachusetts' largest metro areas. In the Bay State, local real estate values tend to have a bigger impact on local mortgage costs than rates, which are similar in all cities. Massachusetts metros also recorded a significantly higher median home value than cities of similar size in the rest of the country.
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Because interest rate works in conjunction with loan amount, it's important to account for both factors before you make a judgment on the cost of a home loan scenario. While rates may be predetermined by your credit history and assets, there are a number of strategies you can use to ensure that your loan expenses align with your financial goals.
Evaluating Mortgage Options: An Example in Boston
As the political, economic and cultural center of Massachusetts, Boston experiences particularly high demand for real estate and mortgage financing. We can use a hypothetical home purchase of $450,000 in Boston to illustrate the options you have for adjusting the costs of a mortgage.
The 30-year fixed-rate loan is by far the most popular type of mortgage, frequently with a 20% down payment. At an average rate of 4.80%, such a loan leads to monthly principal and interest of $1,889 and a lifetime cost of almost $320,000 on interest. However, taxes and insurance would increase these monthly expenses. In addition, homeowners who put down less than 20% would pay more overall interest.
If either the rate or the down payment of a standard 30-year mortgage is too high, you might opt for a government-assisted program such as the FHA loan for first-time homebuyers. With a 3.5% down payment minimum—just $15,750 versus $90,000 in the first example—FHA applicants can reach for larger purchases than they might in a conventional loan. However, the addition of FHA mortgage insurance represents another added cost to consider.
Finally, homeowners with the means and willingness to minimize what they spend on interest can choose to take a shorter 15-year mortgage. By accepting higher monthly costs, 15-year mortgage borrowers access better rates, build equity quickly, and reduce lifetime expenses. For our example, switching to a 15-year mortgage from a 30-year loan saves over $191,000 in total interest but boosts monthly payment up to $2,716.