Homeowners who have put off their refinances until the end of summer have stumbled into a bit of good luck.
Interest rates on America’s most popular types of home loans haven't been budging, according to a long-running survey. That means another stretch of historically low mortgage rates — though it could be a brief one.
The current go-round with COVID-19 isn’t having the same impact on the economy as when businesses were shuttered across the country last year. Without that kind of economic disruption, there’s not much chance mortgage rates will go significantly lower.
30-year mortgage rates
The average interest rate on a 30-year fixed-rate mortgage was unchanged last week at 2.87%, lending giant Freddie Mac reported on Thursday.
The typical 30-year rate is still fairly close to January's all-time low of 2.65%. One year ago, rates were slightly higher than they are now, averaging 2.93%.
National Association of Realtors manager of economic research George Ratiu says mortgage rates haven't been going anywhere because of the COVID cloud hanging over the economy.
"Mortgage rates reflected investor uncertainty over dueling economic indicators," including a disappointing report on private-sector hiring and a six-month low in consumer confidence, Ratiu said in a statement.
The bottoming out of consumer confidence led to a drop in the interest rate, or yield, on the Treasury's 10-year note, Ratiu says. When the 10-year yield goes down, mortgage rates usually fall or stay static.
If you've been wanting to refinance but are looking for a new 30-year loan at a better rate than 2.87%, keep in mind that the Freddie Mac figure is just an average. Some 30-year mortgages now have rates as low as 2.5%.
15-year mortgage rates
The average rate on a 15-year fixed-rate mortgage inched up last week, from 2.17% to 2.18%, Freddie Mac says.
Even with the uptick, the average remains near its recent record low of 2.10%. Last year at this time, 15-year home loans were typically available at 2.42%.
The 15-year fixed is worth a look if you’re considering a refinance. The shorter loan term means you’ll pay significantly less in interest costs than you would with a 30-year, and you’ll pay off your mortgage sooner. But your monthly payment will be much larger.
As with 30-year mortgages, you can find 15-year loans that are much cheaper than the Freddie Mac average. With the right credit score and amount of equity built up in your home, you could pay as little as 1.75% on a refi.
5/1 adjustable mortgage rates
Like the 15-year fixed, five-year adjustable-rate mortgages (5/1 ARMs) saw their rates increase minimally last week, going from 2.42% to 2.43%, on average.
A year ago, 5/1 ARMs were considerably more expensive, averaging 2.93%.
An ARM has a fixed mortgage rate for the first phase of the loan, but the rate periodically increases or decreases after that.
With a 5/1 ARM, the fixed-rate period lasts five years, then rate adjustments come every (one) year.
Mortgage rates are expected to rise this fall
Mortgage rates have essentially been paralyzed by COVID-19 uncertainty. In Freddie Mac's survey, the average rate on a 30-year fixed is the same as it was on Aug. 12.
Since then, the country’s COVID situation has worsened, with the numbers of new cases rivaling what the U.S. dealt with in late January, according to the Centers for Disease Control and Prevention. But mortgage rates haven’t been dragged to new lows as they were at the beginning of the year.
Ratiu says he expects rates "to float near the 3.0% mark" until the Federal Reserve signals it’s ready to scale back some of the strategies that have helped keep mortgage rates low during the pandemic, including the Fed's monthly purchases of billions of dollars in Treasury bonds and mortgage-backed securities.
If no new lockdowns materialize, and the economy continues improving, the Fed will soon have no choice but to start reducing, or tapering, its asset purchases.
"With tapering on the menu," Ratiu says, "I see rates making a jump toward the end of 2021." Freddie Mac has forecast that 30-year mortgage rates will surge to an average 3.4% late this year.
Get a low mortgage rate while you can
So long as the economy is open and improving, there’s not much reason to hope mortgage rates will take another tumble. They could — but that’s not a bet you want to make when there could be thousands of dollars in savings at stake.
A recent Zilllow report found that almost half the homeowners who refinanced their mortgages between April 2020 and April 2021 have saved $300 or more per month. Over the next five years, those homeowners could save around $18,000.
But maximizing your refi savings often takes a little effort on your part. Very little, actually.
The best refinance rates tend to go to borrowers with strong credit histories, so it’s a good idea to take a quick, free look at your credit score. You might discover your score is lower than you want it to be, and that you'll need to improve it before you reach out to lenders.
Lenders also want to see that your cash flow will be able to handle a mortgage. If you're carrying multiple high-interest debts, like credit card balances, you won’t give them much confidence. Rolling your debts into a single, lower-interest debt consolidation loan can cut your interest costs and wipe out your debt faster.
Once you're ready to start applying for loans, compare rates from at least five lenders. Studies from Freddie Mac and others have found five is the magic number for increasing your refi savings by thousands of dollars over time.
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.