With projections that mortgage rates will rise before the end of the year, the opportunity for homeowners to save money by refinancing their home loan will soon pass.
But there is still time to act. After practically freezing for weeks in the wake of pandemic economic uncertainty, rates on some of America’s most popular mortgage products have fallen again, according to a survey by one of the largest mortgage brokers in the country.
That means another period of historically low mortgage rates. But how long it will take – a couple of days, a couple of weeks – is impossible to know.
30 year fixed rate mortgage
The average rate on a 30-year fixed-rate mortgage fell from 2.88% to 2.86% last week, according to mortgage giant Freddie Mac reported on Thursday.
Even if the change was minimal, it’s still more activity than the rates have seen in a while.
“It’s Groundhog Day for mortgage rates as they have been practically unchanged for over two months,” said Sam Khater, Freddie Mac’s chief economist. “The hold pattern in interest rates reflects the market’s view that the outlook for the economy has deteriorated somewhat due to the recovery of new COVID cases.”
In terms of its impact on mortgage rates, today’s weakening outlook just isn’t in the same league as the panic that stalled much of the US economy last year. And the positive economic news affects mortgage rates more than the bad.
Consider it: Job report August, published September 3, was particularly disappointing as only 235,000 jobs were created that month. The 30-year fixed rate has barely moved since then. In contrast, the far brighter July jobs report resulted in an almost immediate spike in average fixed interest over 30 years.
It doesn’t take an overwhelming amount of positivity to drive prices up.
15 year fixed rate mortgage
The average rate on 15-year fixed-rate mortgages saw a more noticeable decline last week, from 2.19% to 2.12%. At the same time a year ago, the 15-year festival averaged 2.35%.
The 15 year slump is particularly gratifying for homeowners considering refinancing. Due to the shorter term, you will pay less interest during the term of your loan and own your home sooner than with a term of 30 years.
A shorter loan period means higher monthly mortgage payments, which means 15 year mortgages are not for everyone. But the savings involved mean they are worth a look.
It’s important to remember that Freddie Mac’s numbers are just an average, which means there are lenders out there offer even lower prices than what Freddie reported.
5/1 adjustable mortgage rates
Bucking the trend of tiny cuts, interest rates rose on five-year floating rate mortgages, or 5/1 ARMs, last week.
The average rate for a 5/1 ARM increased from 2.42% to 2.51%. Although ARM rates have increased, at this point they are still much lower than they were last year when they averaged 2.96%.
ARMs are interesting products. Your interest rate is fixed for the first phase of the loan, but is adjusted up or down regularly thereafter.
For example, a 5/1 ARM starts with a five-year fixed income period. After that, your lender adjusts your interest rate every year.
Prices will go up
We don’t know exactly when it will arrive, but the end of the low mortgage rates and refi bonanza it sparked for millions of homeowners is coming.
Freddie Mac’s latest interest rate forecast sees the 30-year fixed rate this year averaging 3.1%, which means a steady increase over the next three months. The Mortgage Bankers Association industry group predicts that the 30-year maturity will reach 3.3% in the fourth quarter of 2021 – and 4% in the third quarter of 2022.
Much of what happens to interest rates depends on what the Federal Reserve will do in the future.
The Fed has helped keep mortgage rates low in two ways: by keeping its benchmark interest rate, known as the federal funds rate, near zero; and by purchasing billions of dollars’ worth of bonds and mortgage-backed securities.
The federal funds rate is unlikely to move until the economy is COVID-free – great news if you have a variable rate mortgage – but the Fed could begin scaling back its purchase program before the end of the year.
Corey Burr, senior vice president at TTR Sotheby’s International Realty in Washington, DC, expects the Fed’s throttling to increase the value of 10-year government bonds, which directly impact mortgage rates, by about 0.5%.
“Mortgage rates will rise accordingly by 0.5% and 0.625%,” predicts Burr.
How to get a good rate from your lender
To make sure that you are refinancing your mortgage at the lowest interest rate you can get, it is worth doing your research. Lenders can offer very different rates, so take a moment to turn to the first one to promise “the lowest rates” Compare rates from at least five lenders and find out who is offering the best price for your budget.
A solid credit history is required to convince a lender of a low interest rate. Take a quick, free look at your credit score and see if you would benefit from a little credit rehab before applying for your refi
Once you have refinanced your mortgage, you can use the savings to supplement your overall finances, either by Pay off debt or by investing through an app that will help you build your portfolio only with “replacement money”.
If you are not interested in refinancing or are not comfortable with it, you can still reduce the cost of home ownership. When it’s time to renew your home insurance, Obtain tariff offers from several insurers. This is a quick and easy way to ensure that you are not paying too much for your insurance cover.
This article is for information only and is not intended as advice. It is provided without any guarantee.