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Mortgage Rates Hit 3-Year Low and Offer Big Savings to 11M Homeowners

Doug Whiteman
Mortgage Rates Hit 3-Year Low and Offer Big Savings to 11M Homeowners

Mortgage rates keep hurtling lower and have now reached their best levels since the fall of 2016.

Falling rates already had lenders dealing with a flurry of refinance applications. That could turn into a blizzard now, because the latest drop in mortgage rates would allow 11.3 million homeowners to save an average $268 a month by refinancing, according to a calculation from the analytics firm Black Knight.

"Anyone with an interest rate over 4% and more than a few years left on their loan should probably be looking at refinancing," says Rick Sharga, president and CEO of the real estate consulting firm CJ Patrick Co.

A majority of Americans expect rates will stay the same or go even lower.

Mortgage rates are best since the fall of 2016

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Rates on home loans are down for the third straight week.

Mortgage rates have dropped for the third week in a row. The average for a 30-year fixed-rate home loan has been pushed to 3.45%, from 3.51 last week, mortgage giant Freddie Mac reported on Thursday. The rates in the survey come with an average 0.7 point.

At 3.45%, the benchmark mortgage rate is the lowest since early October of 2016 — and is the lowest ever seen during February, MoneyWise.com has found by reviewing Freddie Mac survey data going back to the spring of 1971.

Rates have been tumbling in recent weeks as fears about economic fallout from the coronavirus have had investors seeking out Treasury bonds as a safe haven. Rising demand for Treasuries tends to depress the interest paid on them, and mortgage interest rates typically go down in sync.

As 30-year mortgage rates continue to retreat, they're moving closer to the all-time low of 3.12% seen in November 2012. One year ago, the average was nearly a full percentage point higher, at 4.41%.

Low rates trigger refi mania

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Homeowners are in a stampede to refinance.

Sliding mortgage rates have had homeowners in a rush to refinance. Mortgage applications rose 5% last week, led by a 15% spike in refinance applications, the Mortgage Bankers Association says.

Demand for refinance loans is the highest since June 2013, according to the trade group.

Meanwhile, homebuyers eager to grab an inexpensive mortgage have been frustrated by a scarcity of houses available for sale, especially at the lower prices first-time homebuyers are looking for. Sharga says they might still find the latest dip in mortgage rates helpful.

"These lower rates can dramatically improve the buying power of many potential homebuyers, and give them the opportunity to buy homes that had previously been just outside their price range," he says.

Applications for mortgages to purchase homes dropped 10% last week — but things will be getting better for buyers, says Sam Khater, Freddie Mac's chief economist.

"The combination of very low mortgage rates, a strong economy and more positive financial market sentiment all point to home purchase demand continuing to rise over the next few months," Khater says.

How low will mortgage rates go?

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Mortgage rates could go down even more.

Mortgage rates are expected to stay at historically low levels over a relatively long term. A recent forecast from Freddie Mac's sister company, Fannie Mae, said 30-year fixed-rate mortgages are likely to avearge 3.7% throughout 2020 and 2021. In 2019, the average was 3.9%.

Federal Reserve policymakers met late last month and decided to keep holding down their key interest rate — which should help keep the rates on home loans low.

A new Fannie Mae report released on Friday found nearly half of Americans (48%) expect mortgage rates will stay the same over the next 12 months, and 7% think they'll go even lower.

Sharga, of CJ Patrick Co., says it's possible rates will fall further, but probably not that much further. So don't sit there and wait if you see a good rate and are thinking about buying or refinancing.

"Trying to time the mortgage market in order to get the lowest possible interest rate is like trying to time the stock market in order tell sell stocks at their absolute peak price — and usually an equally unsuccessful endeavor," he says. "For most people, it's a better bet to lock in rates while they're this low rather than miss out on the potential savings as rates inevitably tick back up."

A mortgage rate lock guarantees your interest rate for 30 to 60 days.

Other mortgage rates this week

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Borrowers are finding low rates this week on 15-year mortgages, too.

Rates on 15-year fixed-rate mortgages have tumbled this week to 2.97%, from an average 3% last week. Those loans are a popular refinancing option.

A year ago, 15-year mortgages were at an average 3.84%, Freddie Mac says.

But rates on 5/1 adjustable-rate mortgages have moved higher. Those loans — known as ARMs — are fixed for five years and then can adjust up or down every year after that.

ARMs are currently being offered at an average initial rate of 3.32%, up from last week's 3.24%. Last year at this time, the starter rates on ARMs were averaging a stiffer 3.91%.