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Mortgage rates leap back above 3% — experts say they'll head even higher

Mortgage rates leap back above 3% — experts say they'll head even higher
Mortgage rates leap back above 3% — experts say they'll head even higher

Mortgage rates just gave a wake-up call to Americans who've been procrastinating about refinancing, maybe because they assumed rates would stay low indefinitely.

They won't. In fact, the country's benchmark mortgage rate just popped back above 3% for the first time in over two months.

Analysts warn that rates are likely to keep climbing as the economy improves and inflation perks up. So, homeowners may be running out of time to grab dirt-cheap mortgage rates that will slash their housing costs.

But for now, rates are still very low by historical standards.

30-year mortgages

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Andrii Yalanskyi / Shutterstock

The average rate on America’s most popular home loan — the 30-year fixed-rate mortgage — jumped to 3.02% last week, up from 2.93% the previous week, mortgage giant Freddie Mac reported on Thursday. A year ago, the average was 3.13%.

"Mortgage rates have risen above 3% for the first time in 10 weeks," says Sam Khater, chief economist for Freddie Mac. "As the economy progresses and inflation remains elevated, we expect that rates will continue to gradually rise in the second half of the year."

Rates will be averaging 3.4% by the fourth quarter of 2021, Freddie Mac's most recent forecast predicts.

"For those homeowners who have not yet refinanced — and there remain many borrowers who could benefit from doing so — now is the time," Khater says.

When 30-year rates previously stood at an average 3.02%, in early March, the mortgage data and technology firm Black Knight said there were 12.9 million homeowners who could refinance and cut their monthly payments by hundreds of dollars.

15-year mortgages

Rates on 15-year fixed-rate mortgages last week surged to an average 2.34%, from 2.24% a week earlier, Freddie Mac says. A year ago, the 15-year rate averaged 2.59%.

Shorter-term loans are popular among refinancing homeowners who can afford higher monthly payments or want to cut their lifetime interest costs.

"Interest rates remain low and enticing — mortgage refinances saw a solid gain [last] week — however, with prices of new and existing homes up 18% and 24% [respectively] from last year, buyers are running out of steam," says George Ratiu, senior economist at Realtor.com.

Refi loan applications rose 3% from week to week, while demand for home purchase loans edged up just 1%, according to the latest weekly report from the Mortgage Bankers Association.

5/1 adjustable-rate mortgages

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m16brooks / Shutterstock

The average rate on 5/1 adjustable-rate mortgages, or ARMs, was 2.53% last week in the Freddie Mac survey, up slightly from the previous week's 2.52%. A year ago, ARMs were averaging 3.08%.

Adjustable-rate loans usually start out with lower interest rates than their fixed-rate counterparts, but after a period of time the rates can "adjust" up or down in line with the prime rate or some other benchmark.

The mortgages are called 5/1 ARMs because the interest rates are fixed for the first five years and then adjust every (one) year after that.

How to find low mortgage rates while they last

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fizkes / Shutterstock

With the typical 30-year fixed-rate mortgage still pretty close to 3%, this could be the last, best chance for homeowners to grab killer refinance rates that will make them the envy of their friends and neighbors.

According to Black Knight, you're a good refi candidate if:

  • You have a 30-year mortgage with an interest rate you could reduce by at least three-quarters of 1 percentage point through a refinance — say, go from 3.75% down to 3%.

  • You've got a good-to-exceptional credit score of at least 720. If you haven't looked at your score in a while, it's easy today to get a peek at your credit score for free.

  • You have at least 20% equity in your home, which means the balance left on your mortgage amounts to no more than 80% of the home's current market value.

Comparison shopping works well for finding the lowest mortgage rate available in your area for a person with your credit score. Studies from Freddie Mac and others have found that when you take time to compare rates from at least five lenders, you'll save thousands of dollars over the life of your loan.

Shopping around also will help hold down your other homeownership costs. When it comes time to buy or renew homeowners insurance, gather quotes from multiple insurers to uncover the best price on the coverage you need.