Mortgage rates are rising – and signs indicate even bigger increases are coming
It’s inevitable, homeowners: the pandemic-fueled low mortgage rate party will come to an end.
The economy is open, more than 2 million jobs have been created in the past three months, and COVID-19 relief programs are allowed to end and expire.
Amid signs that the recovery is progressing, rates on some popular mortgages have risen, according to a long-running and closely watched survey.
They haven’t risen much, but it’s a sign that, even in the midst of a sharp wave of COVID-19 infections, the U.S. economy may be too healthy for ultra-low mortgage rates. today remain so for a long time.
30-year fixed mortgage rates
The average interest rate on a 30-year fixed mortgage rose last week to 2.88%, from 2.86% a week earlier, mortgage giant Freddie Mac reported Thursday. Rates are again the highest they have been since early July – just before the start of the COVID delta resurgence.
Sam Khater, chief economist for Freddie Mac, says rates have risen slightly as money rushes into U.S. financial markets amid economic downturns around the world.
“This has led to an increase in purchases by foreign investors of US Treasuries, leading to the maintenance of mortgage rates, despite the increasing dispersion of inflation between different consumer goods and services,” Khater said.
Although the COVID situation has worsened in many parts of the United States in recent months, the economy has steadily improved. If this upward trajectory continues, the uncertainty that helped keep mortgage rates low throughout the pandemic could become less of a factor.
Rates are already skyrocketing, according to a competing survey. On Friday, Mortgage News Daily’s average rate for a 30-year fixed-rate mortgage was 3.13%, down from 3.03% a week earlier.
15-year fixed mortgage rates
As for the average 15-year fixed mortgage rate, it fell last week from 2.12% to 2.15%, according to Freddie Mac.
Despite the increase, this is still considerably cheaper than at the same time last year, when 15-year loans averaged 2.40%.
The 15-year fixed rate is popular for refinances because the shorter term means you pay much less total interest and own your home sooner. Monthly payments, however, are higher than with a 30-year mortgage, so the loans won’t fit all budgets.
Keep in mind that Freddie’s rate numbers are averages. Some lenders are currently offering even lower rates over 15 and 30 years.
5-year adjustable mortgage rates
The average five-year variable rate mortgage rate, or 5/1 ARM, fell from 2.51% to 2.43% last week. A year ago, loans averaged 2.90%.
ARMs start with fixed interest rates for a number of years, then the rates rise or fall at predetermined intervals.
A 5/1 ARM, for example, would start with a fixed interest period of five years, and your interest rate would then adjust every (one) year.
New reasons may run out of time with low interest rates
Forecasters were already warning of a sharp hike in mortgage rates before long, and now the Federal Reserve has just provided even more reasons for it to happen.
The Fed released a new economic assessment on Wednesday, along with a number of key projections. The bottom line for homeowners and home buyers is that mortgage rates will feel upward.
Half of central bank policymakers predict that the Fed will start raising its fed funds rate – which directly affects bank prime rates and adjustable mortgage rates – in 2022. The Fed previously targeted 2023 as the first to increase its benchmark interest rate.
The Fed has also indicated that it may be ready to cut its monthly purchases of $ 80 billion of Treasury bonds and $ 40 billion of mortgage-backed securities.
This purchase has helped keep fixed mortgage rates historically low, so rates should start to rise as the Fed “cuts” its purchases.
“The era of mortgage rates below 3% could be in the mirror by the end of 2021,” predicts George Ratiu, head of economic research at Realtor.com.
How to lock in a low rate now
Despite the pandemic-era low mortgage rates, 78% of eligible homeowners did not refinance their mortgages in the year ending April 2021, according to a recent Zillow survey. Almost half of those who did saved at least $ 300 per month. If you delay refinancing, you could be leaving a pile of money on the table.
But getting the lowest interest rate available can take some work.
You’ll want to be viewed as a low-risk borrower, which can be difficult if you have stubborn credit card balances and other debt. Taking out a debt consolidation loan could help you lower the amount of interest you pay, pay off debt faster, and improve your cash flow.
Once you’ve decided to refinance, you’ll want to check the mortgage rates of at least five lenders. Shopping is a proven way to find the best loan for your budget.
If refinancing your mortgage isn’t something you want to go ahead with, there are other ways to lower the cost of home ownership. When it comes time to renew your home insurance, look for quotes from several insurers, as you may find that you are overpaying hundreds of dollars a year.
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.