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How to's and money-saving tips from resident homeowner and mortgage professional, Cathy West

What actually constitutes an affordable mortgage?

Over the past few years, it's become relatively easy for people to find historically good deals on mortgages. However, because many of the conditions in the housing market have been so favorable to would-be buyers for so long, it's also become easy for people to have somewhat skewed perceptions about what actually constitutes a good deal in the first place. Those who may be thinking about buying these days – especially if they've never done so before – may not be accustomed to dealing with affordability that's more in line with historical averages.

There's plenty of evidence at this point to suggest that consumers' perceptions of affordability have a massive impact on activity in the mortgage market. For some time now, whenever rates have gone up slightly, the number of people seeking mortgages – whether for a purchase or merely a refinance – has declined, despite the fact that any average rate seen during that time is extremely affordable in the big picture.

Getting an understanding
What people may not understand is that prior to the economic downturn, the average rate on a 30-year, fixed-rate mortgage typically hovered between 5.5 percent and 6 percent. That's significantly higher than the rates seen since 2012 or so, when they first bottomed out in the low- to mid-3 percent range, and have rarely even ticked north of 4 percent since then. But nonetheless, the pattern of fewer people looking to obtain a mortgage when rates move up even marginally persists.

To some extent, it could be said that this trend holds back a broader recovery for the housing market as a whole, but there are other factors at play here – such as tight lending restrictions – that also play a role. Nonetheless, if consumers are turned off by rates rising back to, say, 3.5 percent, they're likely in for a rude awakening when broader economic recovery pushes them back toward historical averages.

Factoring in price
Of course, when it comes to affordability, rates are only half the equation. The issue of home prices is also a major one for obvious reasons. And the fact is that in most markets these days, home prices are starting to reach and go beyond pre-recession norms. In many more, they have already surpassed those levels. That, too, eats into the affordability of a given mortgage, but consumers have to keep in mind that this makes the ability to lock in low mortgage rates while they're still available even more important.

This is an issue because, when mortgage rates do start to rise again, consumers shouldn't take that as a sign they should hang out of the market in hopes of a better deal. More likely, a better deal won't be coming along at all. Therefore, having the ability to seize current affordability and lock it in before conditions change will likely help them save potentially tens of thousands of dollars over the life of a loan in comparison with what they might pay even at this time next year.

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