The ongoing wave of infections with COVID delta variants has become a gigantic weight that keeps mortgage rates low.
According to a long-standing weekly survey, rates for the country’s most popular mortgage types have remained historically low for another week, at levels relatively close to their all-time lows.
Homeowners have been given more time to refinance and reduce their monthly payments. But it could be a mistake for borrowers to charge even lower rates amid signs that the economy may be doing well despite the delta.
Mortgage interest over 30 years
The rate on a 30-year fixed-rate mortgage, the most popular mortgage type in the US, averaged 2.87% last week, mortgage giant Freddie Mac reported on Thursday. That’s not far above the record low of 2.65%.
Despite ongoing COVID uncertainty, rates last week were only a fraction higher than the previous week’s 2.86%. A year ago, rates averaged 2.91%.
“The tug-of-war between the economic recovery and the rising number of COVID-19 cases has caused mortgage rates to move sideways in recent weeks,” said Sam Khater, chief economist at Freddie Mac. “Overall, rates remain low, with an opportunity for those who didn’t refinance below 3%.”
And there can be quite a few of those homeowners. Digital real estate platform Zillow recently discovered that only one 22% of eligible mortgage holders refinanced to take advantage of reduced rates available between April 2020 and April 2021.
Nearly half of those who took out refi loans during that period are now saving $300 or more per month, Zillow says.
15-year mortgage rate
The average interest rate on a 15-year mortgage also saw a microscopic increase, from 2.16% to 2.17% last week.
The typical 15-year yield remains close to the recent low of 2.10%. A year ago, the average was significantly higher at 2.46%.
If you’re considering a refi, a 15-year loan can make a lot of sense. The shorter term means you pay much less interest than with a 30-year mortgage, and you own your home much sooner.
But those benefits come at a price: higher monthly mortgage payments that not every homeowner can afford.
5/1 adjustable mortgage rate
Adjustable-rate mortgages, also known as ARMs, bucked the trend last week, moving down rather than up. However, the amount of change was still minimal, with the average rate on a 5/1 ARM falling from 2.43% to 2.42%.
Last year around this time, 5/1 ARMs averaged 2.91%.
ARMs include a mix of fixed and floating interest rates. They remain stable during the initial period of the loan, but after that your rate will “adjust” at predetermined intervals – up or down.
With a 5/1 ARM, you pay a fixed interest rate for the first five years of your mortgage, but then your rate can change every year. Since your mortgage interest rate has the potential to rise year after year, an ARM can be a bit of a gamble.
Tariffs are expected to rise even if the delta rises
Mortgage rates have largely followed the ups and downs of the pandemic in the US, which by some measures is much worse today than around this time last year.
During the seven days ending Friday, the country had an average of about 147,000 new COVID cases per day, according to the Centers for Disease Control and Prevention, up from about 41,400 during the same week-long period last summer. data.
Yet mortgage rates are not falling, but are roughly in line with where they were a year ago. And forecasters predict interest rates will rise in the coming months, with Freddie Mac looking for 30-year mortgages average 3.4% at the end of the year. Why?
Simply put, it’s the health of the economy, not people’s health, that is driving mortgage rates — and the US economy is showing signs of a comeback. Job creation in June and July exceeded expectations and some experts predict strong economic growth of 6% this year.
As long as businesses are allowed to stay open and people have money to spend, the kind of economic instability that drove mortgage rates down in 2020 and early this year will not recur. This could be as low as they are going to get.
“Mortgage rates could rise significantly if the recovering economy overheats in 2022 or 2023,” said Corey Burr, senior vice president at TTR Sotheby’s International Realty in Washington, DC. “If monetary and fiscal stimulus measures [from the Federal Reserve and Congress] have the desired effect, but too soon or more than intended, then growth and inflation risk spiraling out of control.”
Shop around to get the best refi rate
If you can get a new mortgage that is at least three-quarters of a percentage point lower than the interest on your home loan (that is, if you can trade a 3.75% mortgage for a 3% mortgage), refinancing can make good financial sense .
But don’t assume that a lender will give you the lowest possible rate. You may have to put in some effort to get that.
You are considered a solid refinancing candidate and will be offered a cheaper refinancing rate if you have at least 20% equity in your home and a healthy credit score. Today it is quite easy to check your credit score for free and see if you might need to improve it before applying for your refinancing.
To find the best rate available in your area and for someone with your credit history, compare offers from at least five lenders – because rates vary from lender to lender.
Comparison shopping also helps when it comes time to buy or renew your homeowners insurance policy. View prices from multiple insurers can be a quick and easy way to make sure you don’t overpay for coverage.
This article provides information only and should not be construed as advice. It comes without any kind of warranty.