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As mortgage rates rise, borrowers hold back — and may regret it

Ethan Rotberg
·3 min read
As mortgage rates rise, borrowers hold back — and may regret it
As mortgage rates rise, borrowers hold back — and may regret it

Mortgage demand dipped last week, after borrowers watched interest rates jump following a long series of record lows, a new report says.

Rates are the highest in months, and that’s dampened demand for loans, particularly refinance mortgages. But mortgage rates remain super cheap compared to a year ago, so millions of homeowners still have opportunities to refinance and cut their monthly payments.

Experts warn that more government COVID spending could push rates higher — meaning borrowers are at risk of missing out on the current deals.

Mortgage applications slow, led by refis

Homeowners selected refinancing of house and checking interest rates and monthly payments. Home mortgage loans from bank concept
comzeal images / Shutterstock

Overall mortgage applications decreased 1.9% in the week ending Jan. 15, the Mortgage Bankers Association (MBA) reported Wednesday.

In the MBA’s weekly survey of lenders, the average for a 30-year fixed-rate mortgage rose to 2.92% last week, from 2.88%. The average 15-year rate increased for the first time in seven weeks, landing at 2.48%

As rates rose, refinance requests — surging since the pandemic began knocking mortgage rates to new lows last spring — fell by 5% from the previous week, but were still 87% higher versus the same time last year.

More than 19 million mortgage holders can still save an average $308 per month by refinancing now, according to the mortgage technology and data provider Black Knight. Good refi candidates need a solid credit score and at least 20% equity in their homes, Black Knight says.

Will rates keep rising?

A positive housing market concept and graph
Tyler Olson / Shutterstock

Average rates on 30-year fixed-rate mortgages are now at their highest levels since November, according to multiple surveys.

"Market expectations of a larger-than-anticipated fiscal relief package, which is expected to further boost economic growth and lower unemployment, have driven Treasury yields higher the last two weeks," says Joel Kan, MBA’s forecaster.

The interest on Treasury bonds tends to set the pace for mortgage rates — but don’t worry about rates spiraling out of control. The economy is in for a slow recovery, especially with the pandemic still raging across the country.

“One reason why mortgage rates are so low — and appear likely to stay so — is the aggressive approach taken by the Federal Reserve,” notes Matthew Speakman, an economist with Zillow.

Low rates are still out there

cheerful young couple calculating their bills at home
UfaBizPhoto / Shutterstock

The central bank chair, Jerome Powell, said last week that an interest rate hike will come “no time soon,” and Speakman says that will help hold down mortgage rates.

Eager homebuyers are still finding cheap loans to help them land houses in today’s super-competitive housing market. So, applications for new mortgages — called “purchase loans” — jumped 3% last week, the MBA says, and were up 15% from the same week a year ago.

Prospective homebuyers are shopping around to get rock-bottom mortgage rates. Studies have shown that when you compare at least five rate quotes, you can save thousands of dollars over the life of your loan.

If you do happen happen to miss out on the rates bonanza, you have other ways to cut your housing costs. Comparison shop whenever you buy or renew your homeowners insurance, to make sure you get the best rate for the coverage you need.