Mortgage Rates Eased to 7.32%. Here Is What the Drop Is Worth if You Are Planning a Move

On Thursday, October 22, Freddie Mac reported that the average 30 year fixed rate mortgage fell to 7.32 percent, down from 7.40 percent the week before. It is the first weekly decline since August, and it takes the rate down from its highest reading of the past year. The 15 year fixed rate eased to 6.68 percent, down from 6.71 percent. Relief is the word Freddie Mac used. The dollars below show how much relief it actually is if you are deciding whether to move, buy, or rent for another year.

What happened

Freddie Mac surveys rates every week in its Primary Mortgage Market Survey. The figures describe conventional, conforming purchase loans for borrowers with excellent credit who put 20 percent down, so your own quote can sit above or below the average. Still, the survey is the benchmark most buyers and lenders watch, and this week it broke a long run in one direction. From late August onward the 30 year rate climbed or held week after week, reaching 7.40 percent in mid October. This week it fell by 0.08 percentage points, or 8 basis points.

The year over year comparison explains the frozen housing market. A year ago the 30 year rate averaged 6.19 percent and the 15 year rate averaged 5.44 percent. Rates are more than a full point higher than last fall on both loans.

Buyers have already voted on what that costs. Earlier this week the National Association of Realtors reported that pending home sales, signed contracts that have not yet closed, fell 7.3 percent in September to the lowest reading since its index began in 2001, and 11.3 percent below a year earlier. Contracts fell in every region, and economists had expected a drop of only 0.5 percent. Most contracts close within one or two months, so at 7.40 percent a record share of buyers decided not to sign. This week's dip is the first test of whether any of them come back.

What it means in dollars

A rate only matters once it is a payment. Three examples, worked in full, using principal and interest only. Taxes, insurance, and fees would add to every figure.

A $400,000 loan over 30 years. At last week's 7.40 percent, the payment is $2,769.52 a month. At this week's 7.32 percent, it is $2,747.72. The drop saves $21.80 a month, about $262 a year, and about $7,847 in total interest if the rate held for the full loan. Real, but modest. Against a year ago it is smaller still: at 6.19 percent the same loan cost $2,447.28 a month, so today's buyer pays $300.44 a month more, about $3,605 a year more. The weekly drop repairs about 7 percent of that gap.

A $400,000 home with 20 percent down. This is the move decision in its most common shape: a $400,000 purchase, $80,000 down, and a $320,000 loan. At 7.32 percent the payment is $2,198.18 a month. At 7.40 percent it was $2,215.62, so the drop saves $17.44 a month. At last year's 6.19 percent the payment was $1,957.82, so the same home costs $240.36 a month more to finance today than a year ago. Another way to see the size of the move: the payment that carried a $400,000 loan at 7.40 percent carries about a $403,173 loan at 7.32 percent. The drop buys roughly $3,173 of extra borrowing room. It does not buy a different neighborhood.

A $300,000 loan over 15 years. Shorter loans barely noticed this week. At 6.68 percent the payment is $2,643.10, against $2,648.08 at last week's 6.71 percent, a saving of $4.98 a month. Against a year ago: at 5.44 percent the payment was $2,441.71, so today's borrower pays $201.39 a month more than last fall's. A 3 basis point weekly move is not a reason to rush a purchase or a refinance.

The pattern is consistent. This week's decline is worth having, roughly a tank of gas a month on a typical loan, and it matters most as a direction change after two months of increases. It does not restore last year's affordability, and a plan that only works if rates fall further is not a plan. It is a bet.

Run your own numbers

Start with the payment at a rate you can actually get quoted, not the national average. Put your loan amount, term, and rate into our mortgage calculator and run it three times: at 7.32 percent, at 7.40 percent, and at a rate half a point lower, so you can see what waiting would have to deliver to be worth the wait. If that difference is smaller than a year of rent, the rate is not the deciding factor in your move. The rent is.

Then run the stay or go comparison in our rent vs. buy calculator. It weighs the mortgage payment against rent over the years you expect to stay, including the buying and moving costs a payment alone leaves out. That horizon is where this week's numbers bite. A buyer who stays seven years or more can usually absorb a higher rate and refinance if rates fall. A buyer who may move again in three years pays the closing and moving costs twice and keeps little of any rate improvement.

Key takeaways

The release: Freddie Mac put the 30 year fixed rate at 7.32 percent on October 22, down from 7.40 percent, the first weekly decline since August. The 15 year rate eased to 6.68 percent from 6.71 percent. The context: both rates remain more than a full point above a year ago, 6.19 percent and 5.44 percent, and pending home sales just hit a record low. The dollars: the drop saves $21.80 a month on a $400,000 loan over 30 years, $17.44 a month on a $320,000 loan, and $4.98 a month on a $300,000 loan over 15 years. The gap: a buyer today still pays $300.44 a month more than a year ago on that $400,000 loan. The move: price your decision at today's rate and your real timeline, not at the rate you hope returns.