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Homeowners who waited to refinance until mortgage rates got a little better just got their wish.
The rates on some of the most popular types of home loans in the United States have fallen again, and 30-year mortgage rates have fallen below a major threshold, new data from a long-standing survey shows.
Mortgage rates had skyrocketed by the end of September, so the further cuts are somewhat surprising – and pleasant for homeowners, as rates at their current levels have reopened the door to significant refinancing savings.
But if the factors driving the rate cut are temporary, as many expect, the cost of a refi could start to rise again quickly.
30-year fixed mortgage rates
The average interest rate on 30-year fixed-rate mortgages fell below 3% last week, from 3.01% to 2.99%, mortgage giant Freddie Mac reported Thursday.
At the same time a year ago, the 30-year fixed rate averaged 2.87%. And this is an important detail.
Even though the COVID-19 situation in the United States has worsened in recent months, the economy is in much better shape today than it was a year ago. Without the widespread business closings and lack of travel that hampered economic growth in late 2020, there is less downward pressure on mortgage rates today.
So why did the rates go down last week? An expert attributes the move to the ongoing congressional conflict over the country’s debt.
Investor worries about debt ceiling deadlock in Congress prevailed over ADP report on stronger than expected private employment, falling jobless claims and solid gains in factory orders “said Realtor.com director of economic research George Ratiu.
Payroll processing company ADP reported last Wednesday that companies had been surprisingly quick to hire last month. But two days later, the government’s jobs report showed the number of new jobs added to the economy in September was the lowest in nine months.
15-year fixed mortgage rates
The average rate on 15-year fixed-rate mortgages fell last week from 2.28% to 2.23%, Freddie Mac.
Unlike the 30-year-old, the 15-year fixed is still more affordable than it was a year ago, when it averaged 2.37%.
This is especially good news for homeowners, as 15-year mortgages are a popular choice for refinancing. The shorter loan term means you’ll pay a lot less interest and be able to own your home sooner. The trade-off is that your monthly payments will be higher than if you opted for a 30-year.
It’s important to keep in mind that the numbers shared by Freddie Mac are just averages. Some lenders offer even lower mortgage rates, including 15-year loans very close to 2%.
5-year adjustable mortgage rates
The five-year variable rate mortgage rates, also known as the 5/1 ARM, reversed the trend last week. The average rate on a 5/1 ARM increased from 2.48% to 2.52%.
Despite the increase, ARMs are still cheaper than a year ago, when the average rate was 2.89%.
Adjustable rate loans combine the stability associated with fixed rate mortgages with the affordability of adjustable rates.
An ARM 5/1, for example, has an initial term of five years with an interest rate that does not change. Then the rate will adjust, up or down, once a year.
Rates below 3% shouldn’t last
Although employment in the United States looks bumpy, other recent reports have indicated that the economy is on the road to recovery. At the same time, there are more and more signs that rising inflation may persist for some time.
Against this backdrop, the Federal Reserve has indicated that it plans to scale back one of its strategies in the era of the pandemic: its monthly purchases of billions of dollars of bonds and mortgage-backed securities. This purchase helped keep mortgage rates low.
Economist Ratiu says he expects mortgage rates “to continue on an upward path over the next few months, as economic indicators point to continued expansion and financial markets take into account expected monetary tightening “from the Fed.
But for now, borrowers have a brief window before mortgage rates are allowed to return to normal behavior. This provides a good opportunity for homeowners to refinance their mortgages, says Sara Rutledge, chief economist of the Millionacres real estate investor information platform.
“Even with the short-term volatility, we don’t expect rates to approach 4% for the rest of the year,” Rutledge said.
How to get the lowest mortgage rate
While it’s true that 30-year mortgage rates are once again on average under 3%, a lender may not automatically offer you the lowest interest rate available. But there are steps that can increase your chances of getting a good rate.
You’ll want to check the mortgage rates of at least five lenders to see who offers loans that fit your budget. Studies by Freddie Mac and others have shown that comparison shopping can lead to huge savings on a mortgage.
It’s hard to get approved for a home loan, let alone get an attractive rate, if your finances are clogged with a pile of stubborn, high-interest debt, like credit card balances. Bundling them together into one low interest debt consolidation loan will lower your interest charges, make debt more manageable, and unleash the kind of cash flow that both lenders and their applicants have.
If refinancing isn’t in the cards, you have other ways to lower the cost of home ownership. For example, when the time comes to purchase or renew home insurance, be sure to get quotes from multiple insurers. It’s quick and easy, and you could save hundreds of dollars.
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
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