Mortgage rates have done what seemed unthinkable a few months ago: they’ve fallen within screaming distance of their recent record lows.
When 30-year fixed mortgage rates peaked in the spring, there were predictions that the recovery of the economy from COVID could push interest rates as high as 4% this year. But now they’re well below 3% again – offering hefty savings to homebuyers and home buyers homeowners refinance.
Rates have fallen with help from government announcement that the end is approaching a widely hated fee for refinancing, although another reason is that the recovery looks less certain.
Mortgage interest over 30 years
The average rate on a 30-year fixed-rate mortgage fell to 2.78% last week, mortgage giant Freddie Mac reported on Thursday, marking the fourth consecutive week of declines.
At 2.78%, the 30-year-old is now cheaper than it has been since February 18, when the average was 2.81%. Rates are now just one-eighth of a point above the all-time low of 2.65% reached in the first week of January.
Rates started ticking up in February and March, as the country’s COVID-19 vaccination campaign kicked into high gear. But since then, they’ve been going in the opposite direction.
The recent drop in rates is partly linked to the economic uncertainty created by rising COVID infections.
“Concerns about the Delta variant and the general course of the pandemic are undoubtedly impacting economic growth,” said Sam Khater, chief economist at Freddie Mac. Falling rates offer homeowners another chance to save money on their monthly mortgage payments through refinancing.”
A year ago, the 30-year mortgage interest rate was 3.01% around this time.
15-year mortgage rate
The average interest rate on 15-year mortgages also fell from 2.22% to 2.12%. A year ago, 15-year fixed loans had an average interest rate of 2.54%
Fifteen-year mortgages are a popular choice among refinancing homeowners. The Mortgage Bankers Association estimates that 15-year fixed-rate loans account for about 20% of all refinancing in the U.S.
A decision that makes refi loans cheaper is another reason for the general fall in mortgage rates: The Federal Housing Finance Agency is cutting its 0.5% fee on refinancing. That fee has cost the typical borrower an additional $1,400, according to the mortgage bankers.
The FHFA oversees both Freddie Mac and Fannie Mae, two government-sponsored companies that buy the most mortgages from lenders. The agency introduced the fee last year because it said Freddie and Fannie needed the revenue as they were dealing with billions in losses related to the pandemic.
Because lenders passed the extra costs on to consumers, the fee “artificially raised average mortgage rates,” says Zillow economist Matthew Speakman. Banks are now lower their rates their prior to the official end of the surcharge on August 1.
5/1 adjustable mortgage rate mortgage
The yield on five-year floating-rate mortgages — also known as 5/1 ARMs — averaged 2.49% last week, Freddie Mac says. Unlike its fixed-rate counterparts, the 5/1 ARM saw its typical rate hike, from 2.47% a week earlier.
Last year at this time, the average rate on a 5/1 ARM was a significantly higher 3.09%.
With variable interest mortgages, the interest you pay is fixed during the first phase of the loan. Thereafter, the rate is periodically adjusted based on a number of factors.
With a 5/1 ARM, you pay a fixed interest rate for the first five years, after that your rate is recalculated every (one) year.
How to get one of today’s low rates
“It remains to be seen how long we can enjoy these rates,” notes Matthew Graham of . on Daily mortgage news. Mortgage rates tend to follow government bond yields, and those rates fluctuate as investors react to COVID developments.
If you’re a homeowner delaying refinancing, it’s probably time to stop procrastinating. And there have been many: A recent study by Zillow found that: only 22% of eligible homeowners took out new loans between April 2020 and April 2021, despite ultra-low mortgage rates.
Once you’re ready to finally get rid of the refi fence, you’ll need to convince lenders that you’re taking good risk so that they offer you one of the lowest rates.
Start taking a free look at your credit score, to see where it is. The best mortgage rates are usually offered to those with higher scores, so you may want to do a little rehab before applying for refi loans.
Lenders will also want to see that you don’t have a lot of other debt, which can put a strain on your ability to make regular mortgage payments. If you have multiple high-interest debt, such as credit card balances, consider putting them in a single, lower interest consolidation loan. It frees up space in your budget and helps you get rid of those debts faster.
When you start approaching lenders, don’t stop after just one. Studies by Freddie Mac and others have shown that comparing mortgage offers from at least five lenders will reward you with thousands of dollars in savings over time
Use your comparison skills to look around for the best rate on homeowners insurance, at. If reducing the cost of home ownership is the goal, there are more ways to do that than refinancing your home loan.