Mortgage rates drop to new 5-month low, giving 14M a reason to refinance

Mortgage rates fell for the third week in a row, making refinances an even more attractive proposition for millions of US homeowners who are still sitting on older, more expensive loans.

Average 30-year mortgage rates fell below 3% again last week, to a new five-month low, according to a leading survey. Today’s mortgage rates can provide a typical refinancer with hundreds of dollars in monthly savings, other new data shows.

30-year mortgage rates

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

Rates are the lowest since the week of February 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%.

“Since peaking at 3.18% in April, mortgage rates have fallen by 30 basis points,” notes Sam Khater, chief economist at Freddie Mac. A basis point is one hundredth of 1 percentage point.

Despite ongoing cuts, current rates below 3% are unlikely to last, experts say. As the economy sheds the effects of the coronavirus crisis, it may only be a matter of time before the Federal Reserve begins to scale back its pandemic management strategies, including holding rates interest at historically low levels.

“Homeowners and buyers shouldn’t get too complacent in thinking that 30-year rates will stay below 3%,” Corey Burr, senior vice president of TTR Sotheby’s Real Estate, told MoneyWise. “They should act now to refinance, if it makes economic sense to them.”

15-year mortgage rates

The average rate on a 15-year fixed-rate mortgage edged up last week, from 2.20% to 2.22%. But 15-year loans are considerably cheaper than they were around the same 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 these yields start to rise, fixed mortgage rates will likely follow.

The story continues

But an ongoing Fed move could help keep bond yields and mortgage rates low. To support the economic recovery, the central bank should continue to purchase at least $ 40 billion in mortgage-backed securities each month, which are investments made up of bundles of real estate loans.

“In short, the Fed believes there is still work to be done 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 just adjusted his forecast for 2021 and is now looking for 30-year fixed mortgage rates averaging 3.1% throughout this year, down from his April forecast of 3.2%.

5/1 adjustable mortgage rates

Rates on 5/1 variable rate mortgages, or ARMs, last week 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 usually have lower rates than those attached to fixed rate loans – up front anyway. After an initial fixed rate phase, the interest rate adjusts based on the prime rate or some other benchmark.

A 5/1 ARM has a fixed rate period of five years followed by adjustments every (one) year thereafter. Since the rate can go up or down, variable rate mortgages can sometimes be difficult to budget.

Refi would benefit nearly 14 million homeowners

Considering the historically low mortgage rates of the past year, you might assume that homeowners have flooded their lenders with requests for refinancing. But that was not the case.

A survey conducted by the real estate platform Zillow found that only 22% of eligible homeowners refinanced their mortgage between April 2020 and April 2021. Almost half of them saved $ 300 or more per month with a refi.

New figures from mortgage data and tech firm Black Knight show that with 30-year rates at current levels, 13.9 million homeowners could save an average of $ 293 per month by refinancing their home.

If you are a homeowner who has postponed refinancing, don’t be intimidated by the process. Start by gathering and comparing mortgage offers from at least five lenders. From then on, you won’t have to do anything more complicated than what you had to do when you took out your initial mortgage.

When you apply for a loan, whether for a refi or to buy a home, lenders will carefully examine your creditworthiness. Today, it’s easy to check your credit score for free to see if you need to increase 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 could lower the cost of home ownership by getting a better deal on your home insurance. A little comparison is all you need to know if you’re overpaying. The same strategy could also save you hundreds of dollars a year on auto insurance.