Are Low Mortgage Rates Bad for Housing?

Todd Bunton
May 10, 2012

Mortgage rates hit a new record low yet again this week. According to Freddie Mac, the average on a 30-year fixed rate mortgage is now just 3.83%. That's way below the average 30-year fixed rate of 8.75% since 1971:

This is great news for people with the ability to refinance or those looking to buy a home. But what's going to happen to the fragile housing market if/when mortgage rates rise?

Take a look at the effect of interest rates on the monthly mortgage payments for a conventional 30-year fixed rate mortgage on a $200,000 loan:

And to keep the same monthly payment of $935 at the different rates, look at what would have to happen to the loan balance:

In other words, home prices would have to come down a lot or interest rates will have to stay at rock-bottom levels for a long time.

So what do you think? Are today's rock-bottom interest rates bad for home prices in the long-run? Can mortgage rates stay this low forever? Sound off below:

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