Mortgage rates have fallen for a third consecutive week,
making refinances an even more attractive proposition for millions of U.S.
homeowners who are still sitting on older and costlier loans.
Average rates on 30-year home loans dropped even further
below the 3% mark last week, to a new five-month low, a leading survey says.
Today's mortgage rates can provide a typical refinancer with hundreds of
dollars in monthly savings, according to other new data.
30-year mortgage rates
The average interest rate on America's favorite home loan,
the 30-year fixed-rate mortgage, dipped last week from 2.90% to 2.88%, mortgage
giant Freddie Mac reported on Thursday.
Rates are the lowest since the week of Feb. 18, and 30-year
mortgages are even cheaper than they were a year ago, during some of the
darkest days of COVID-19, when the average rate was 2.98%.
“Since their peak at 3.18% in April, mortgage rates have
declined by 30 basis points,” notes Sam Khater, Freddie Mac’s chief economist.
A basis point is one-hundredth of 1 percentage point.
Despite the ongoing declines, today's rates under 3% are
unlikely to last, experts say. As the economy shakes off the effects of the
coronavirus crisis, it may be only a matter of time before the Federal Reserve
begins reducing its pandemic management strategies, including holding interest
rates at historic lows.
"Homeowners and buyers should not get too complacent
thinking that 30-year rates will stay below 3%," Corey Burr, senior vice
president at TTR Sotheby’s Real Estate, tells MoneyWise. "They should act
now to refinance, if it makes economic sense for them."
15-year mortgage rates
The average rate on a 15-year fixed-rate mortgage saw a
modest increase last week, rising from 2.20% to 2.22%. But 15-year loans are
considerably cheaper than than they were at this time last year, when the
average was 2.48%.
The low cost of fixed-rate mortgages matches the low yields
(interest) on 10-year Treasury bonds. Once those yields begin ticking upward,
fixed mortgage rates are likely follow suit.
But one ongoing Fed measure could help hold down bond yields
and mortgage rates. To support the economic recovery, the central bank each
month is expected to keep buying up at least $40 billion in mortgage-backed
securities, which are investments made up of bundles of home loans.
"In short, the Fed thinks that there is still work to
do to get the economy back on track, which will keep mortgage rates low for the
remainder of the year," says Realtor.com senior economist George Ratiu.
Freddie Mac just adjusted its forecast for 2021 and now
looks for 30-year fixed mortgage rates to average 3.1% throughout this year,
down from its April prediction of 3.2%.
5/1 adjustable mortgage rates
Rates on 5/1 adjustable-rate mortgages, or ARMs, last week
were averaging 2.47% last week, down 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 the outset, anyway. After an initial fixed-rate phase,
the interest rate adjusts in line with the prime rate or some other benchmark.
A 5/1 ARM has a five-year fixed-rate period followed by
adjustments every (one) year after that. Because the rate can move up or down,
adjustable-rate mortgages can sometimes be hard to budget around.
Refi would benefit nearly 14 million homeowners
Given the past year's historically low mortgage rates, you
might assume that homeowners have been flooding their lenders with refinance
applications. But that hasn't 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. Almost half of them saved $300 or more a month with a refi.
New figures from the mortgage data and technology firm Black
Knight show that with 30-year rates at their current levels, 13.9 million
homeowners could save an average $293 a month by refinancing their homes.
If you’re a homeowner who's been putting off refinancing,
don’t be intimidated by the process. Start by gathering and comparing mortgage offers
from at least five lenders. From that point on, you won’t have to do anything
more complicated than what you had to do when you took out your original
When you apply for a loan, for either a refi or a home
purchase, lenders will look carefully at your creditworthiness. Today it's easy
to check your credit score for free to see if you need to boost it before you
start approaching lenders. The higher your credit score, the lower your
mortgage rate is likely to be.
And if you ultimately rule out a refi, you might lower the
cost of homeownership by scoring a better deal on your homeowners insurance. A
little comparison shopping is all you need to find out if you’re overpaying.
The same strategy could save you hundreds a year on car insurance, too.
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