Mortgage rates fall to new low in 5 months, giving 14 million a reason to refinance

Mortgage rates fall to new low in 5 months, giving 14 million a reason to refinance

Mortgage rates have fallen for the third week in a row, making refinancing an even more attractive proposition for millions of American homeowners who are still on older and more expensive loans.

Average yields on 30-year home loans fell even further below 3% last week, according to a leading survey, to a new low in five months. Today’s mortgage rates can provide a typical refinancer with: hundreds of dollars in monthly savings, according to other new data.

Mortgage interest over 30 years

Interest rates down

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The average rate on America’s favorite home loan, the 30-year fixed-rate mortgage, fell from 2.90% to 2.88% last week, mortgage giant Freddie Mac reported on Thursday.

Rates are their lowest since the week of Feb. 18, and 30-year mortgages are even cheaper than a year ago, during some of the darkest days of COVID-19, when the average rate was 2.98%.

“Mortgage rates have fallen 30 basis points since their peak of 3.18% in April,” said Sam Khater, chief economist at Freddie Mac. A basis point is one-hundredth of 1 percentage point.

Despite the continuing declines, current rates below 3% likely won’t last long, experts say. With the economy shaking off the effects of the coronavirus crisis, it may only be a matter of time before the Federal Reserve begins to phase out its pandemic management strategies, including keeping interest rates at historic lows.

“Homeowners and buyers should not become complacent into thinking that the 30-year yield will remain below 3%,” Corey Burr, senior vice president at TTR Sotheby’s Real Estate, tells MoneyWise. “They should act now to refinance, if that makes economic sense to them.”

15-year mortgage rate

Rates and house balancing

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The average interest rate on a 15-year mortgage rose slightly from 2.20% to 2.22% last week. But 15-year loans are significantly cheaper than around this time last year, when the average was 2.48%.

The low cost of fixed rate mortgages corresponds to the low yields (interest rates) on 10-year government bonds. Once those yields start ticking up, fixed mortgage rates are likely to follow.

But an ongoing measure from the Fed could help keep bond and mortgage rates low. To support the economic recovery, the central bank is expected to continue buying at least $40 billion in mortgage-backed securities each month, which are investments made up of bundles of home loans.

“Basically, the Fed thinks there is still work to do to get the economy back on track, which will keep mortgage rates low for the rest of the year,” said George Ratiu, senior economist at Realtor.com.

Freddie Mac has just adjusted his 2021 forecast and is now looking for a 30-year fixed mortgage rate to average 3.1% for the full year, down from April’s forecast of 3.2%.

5/1 adjustable mortgage rate mortgage

The rate on 5/1 adjustable-rate mortgages, or ARMs, averaged 2.47% last week, up from 2.52% the week before.

At the same time a year ago, the 5/1 ARM averaged 3.06%.

ARMs typically come with cheaper rates than those attached to fixed-rate loans — at least in the beginning. After an initial fixed-rate phase, the interest rate adjusts the prime rate or some other measure.

A 5/1 ARM has a fixed rate period of five years followed by adjustments every (one) year. Because interest rates can go up or down, adjustable-rate mortgages can sometimes be difficult to budget.

Refi would benefit nearly 14 million homeowners

Suburban Houses

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Given the historically low mortgage rates of the past year, you might assume that homeowners have flooded their lenders with refinancing applications. But that has not been the case.

A survey conducted by real estate platform Zillow found only 22% of eligible homeowners refinanced their mortgages between April 2020 and April 2021. Nearly half of them saved $300 or more per month with a wire transfer.

New figures from the mortgage data and technology company black knight show that with 30-year interest rates at current levels, 13.9 million homeowners could save an average of $293 per month by refinancing their homes.

If you are a homeowner who has put off refinancing, don’t be intimidated by the process. Start collecting and comparing mortgage quotes from at least five lenders. From that moment on, you don’t have to do anything more complicated than when taking out your original mortgage.

When you apply for a loan, for a refidng or for the purchase of a house, lenders look closely at your creditworthiness. Today it’s easy to check your credit score for free to see if you should boost it before approaching lenders. The higher your credit score, the lower your mortgage interest rate is likely to be.

And if you end up ruling out a refi, you can cut homeownership costs by scoring a better deal on your homeowners insurance policy. A little comparative shopping is all you need to find out if you’re paying too much. The same strategy could: save you hundreds a year on car insurance, also.