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Mortgage Rates Plunge to 3-Month Lows Amid Iran Drama

·4 min read
Mortgage Rates Plunge to 3-Month Lows Amid Iran Drama
Mortgage Rates Plunge to 3-Month Lows Amid Iran Drama

If you've been holding out for better mortgage rates, that wait is over. Rates have taken a dive this week to the lowest levels since mid-October and are the best for early January since 2013, according to a widely followed survey.

The low rates, influenced by financial market reaction to the U.S. tensions with Iran, are likely to keep fueling the unusually strong home selling for this time of year being reported by real estate agents.

"January has become the 'New April,'" says Corey Burr, senior vice president with Sotheby's International Realty in Chevy Chase, Maryland.

Rates fall sharply

Wooden houses and an easel arrow down represent falling mortgage rates.
Andrii Yalanskyi / Shutterstock
Mortgage rates are lower this week.

Mortgage rates are down to levels last seen about three months ago, mortgage giant Freddie Mac reported on Thursday. The average for a 30-year fixed-rate mortgage is now 3.64%, versus 3.72% last week. The loans in the firm's survey come with an average 0.7 point.

The current rates are the lowest seen during the first weeks of January in seven years, MoneyWise.com has found, by reviewing Freddie Mac's historical data.

One year ago, the benchmark mortgage rate was more than three-quarters of a percentage point higher, at an average 4.45%.

"Mortgage rates fell to the lowest level in 13 weeks as investors sought the quality and safety of the U.S. Treasury fixed-income markets," explains Sam Khater, Freddie Mac's chief economist.

The flight to safer investments amid the Iran drama pushed up prices for Treasury bonds — and sent their yields, or interest rates, lower. Mortgage rates tend to follow the path of the yield on the 10-year Treasury note.

Use this calculator to see the kind of monthly payment you can expect from today's low rates.

Low rates are just what lenders have been waiting for

Loan Mortgage Payment Property Concept
Rawpixel.com / Shutterstock
Lenders have been waiting for consumers to start applying for more mortgages.

If you took out a mortgage as recently as 2018, you might chop your monthly payment by refinancing into a new loan at a lower rate.

Homeowners who refinanced their mortgages during the spring of 2019 are now saving an average of about $140 a month, or $1,700 a year, Freddie Mac has said.

Borrowing has been going through the usual slowdown seen during the holiday season and early in the new year, but the drop in mortgage rates could lead to a flurry of new mortgage applications.

Overall mortgage applications fell 1.5% over the two weeks that ended Jan. 3, led by a big decline in refinance activity, the Mortgage Bankers Association said Wednesday.

Refinance applications slid 8% last week, though they were up a solid 74% from a year ago, when mortgage rates were higher.

The outlook for mortgage rates and housing

Couple with real-estate agent visiting house for sale
goodluz / Shutterstock
Low mortgage rates are helping to bring out the buyers.

Mortgage rates are likely to stay down, with 30-year fixed-rate mortgages averaging 3.8% throughout both 2020 and 2021, according to Freddie Mac's latest forecast.

"The drop in mortgage rates, combined with the strong labor market, should propel a continued rise in homebuyer demand," says Freddie Mac's Khater.

Take a look at today's best mortgage rates where you live.

Applications for "purchase" mortgage loans — to buy homes — last week were up 5% compared to two weeks earlier, even as refi applications fell. The usual spring homebuying season seems to have arrived early, says Burr, with Sotheby's.

"Buyers are active now because they want to buy a property, and many of them have been looking for a long time, often being outbid on the best properties," he says. "Their enthusiasm to buy is being fed by a strong economy, confidence about their job prospects, low interest rates and low housing inventory."

Favorable mortgage rates are allowing buyers to leverage their purchasing power, Burr says.

It's important to lock a good rate when you see one, because mortgage rates can be unpredictable.

Other mortgage rates this week

Close up of business man signing contract making a deal, business contract details. Businessman signing an official document
KorArkaR / Shutterstock
Homeowners are finding lower rates on 15-year refinance loans.

Rates on 15-year fixed-rate mortgages have dropped to an average 3.07%, from 3.16% last week. Those loans are a popular choice among homeowners who refinance.

A year ago, 15-year mortgages were averaging 3.89%, Freddie Mac says.

And, rates have plummeted this week on 5/1 adjustable-rate mortgages, or ARMs, which are level 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 3.30%, way down from last week's 3.46%. Last year at this time, the starter rates on ARMs were averaging 3.83%.

Check out today's lowest mortgage rates available where you are.