Average interest rates on 30-year mortgages fell to 2.98% last week, mortgage giant Freddie Mac reported on Thursday. That’s less than the previous week’s 3.02%. A year ago, the 30-year commitment averaged 3.07%.
While rates are above January’s record low of 2.65%, they are still lower than ever before the COVID-19 pandemic. As the economy recovers and inflation warms, current rates are unlikely to fall much further.
Danielle Hale, chief economist at Realtor.com, sees interest rates moving in the other direction, moving towards an average of 3.4% by the end of the year.
“We are at such a low level that 3.4% will be a significant increase,” she said in an interview. “Home buyers will notice when they calculate their monthly mortgage payment.”
The same can be said for homeowners considering: a cost-effective refinancing.
Interest rates on 15-year mortgages have also fallen, says Freddie Mac.
The average last week was 2.26%, compared to 2.34% a week earlier. A year ago, interest rates on 15-year loans were on average 2.56% steeper around this time.
George Ratiu, senior economist at Realtor.com, says interest rates fluctuate as investors try to get a clear picture of where the US economy is headed in the near term.
Financial markets are trying to weigh the improvement in unemployment claim rates and other economic indicators against shifts in real estate markets and the Federal Reserve’s comments about the bank’s expected timetable for monetary policy tightening given the rising inflation,” says Ratiu.
5/1 floating rate mortgages
Rates on 5/1 adjustable-rate mortgages (ARMs) have risen slightly, rising from an average of 2.53% to 2.54% last week. A year ago, rates on 5/1 ARMs averaged as much as 3%.
These loans initially tend to have lower interest rates than their 30-year fixed-rate counterparts, in exchange for the risk borrowers take.
With 5/1 ARMs, you pay a fixed rate for the first five years, then “adjust” the rate every year. Your mortgage rate may fall and save you money, but it may also rise and cost you more.
Given the unpredictability, homeowners often refinance in: a stable mortgage with a fixed interest rate when the introductory period on an ARM ends.
Rates are expected to rise soon
With inflation simmering and positive economic data — such as the 850,000 new jobs created in June — pouring in, there is growing sentiment that the Federal Reserve may need to start raising interest rates earlier.
“Investors now expect steps to tighten monetary policy to be taken earlier than previously expected and to implement slightly smaller fiscal stimulus measures than earlier in the year.” writes Zillow economist Matthew Speakman.
While the Fed has only an indirect influence on long-term mortgage rates, today’s low 30-year yield maybe as good as it gets for US borrowers.
“We expect interest rates to hover around 3.0% in the coming weeks, until the Fed provides a clearer timetable for scaling back its mortgage-backed securities purchases,” said Realtor.com’s Ratiu.
Find a cheap loan while they are still available
A recent Zillow study found that 78% of homeowners have refinanced their mortgages at super low rates in the past 12 months.
That’s a group you don’t want to be a part of.
If you’re still weighing the benefits of refinancing, there are a few things you can do to increase your chances of a less than 3% rate when it comes time to look for offers from lenders.
take a check your credit score for free and see if you need to crank it up a few notches. The most desirable rates are generally offered to homeowners who have demonstrated responsible use of credit.
Once your credit is in good shape, you can shop around for the best loan. Studies by Freddie Mac and others have shown that: comparing at least five mortgage quotes is the key to saving the most with your refinance.
When you apply for a mortgage, lenders will want to see that your cash flow is stable enough so that you can pay your monthly payments. They won’t have much confidence if you already have multiple high-yield debt. Consider putting all your balances in one, consolidation loan for debt with lower interest rates.
If it turns out that a refi isn’t in the cards — and no shame if it isn’t — you have other ways to lower the cost of home ownership. If you renew your home insurance policy, request quotes from multiple insurers and compare them. Why pay more than necessary?