Mortgage rates edge lower, with refinances available at under 3% and even 2%


Mortgage rates edge lower, with refinances available at under 3% and even 2%

Mortgage rates have backed down, one week after bolting higher, a closely watched survey shows. The pullback is giving homeowners more time to lock in low refinance rates.

Borrowers who shop around are finding 30-year refi loans at rates deep beneath 3%, and 15-year mortgages at rates that are even lower.

But interest rates are forecast to rise in the coming weeks and months, meaning the days of super-cheap refinance rates are numbered.

30-year mortgage rates
Rates on America's most popular home loan, the 30-year fixed-rate mortgage, inched down to an average 2.86% last week, from 2.87% a week earlier, mortgage giant Freddie Mac reported on Thursday. The typical rate remains relatively close to January's all-time low of 2.65%.

One year ago, 30-year rates were a more expensive 2.99%, on average.

Mortgage rates had made a sharp move higher during the previous week, but they leveled out as a disappointing report on U.S. retail sales caused the interest rates on U.S. Treasury bonds to go flat, explains George Ratiu, senior economist at Realtor.com. Rates tend to track the yield on the Treasury's 10-year note.

Additionally, "mortgage rates responded to subsequent investor concerns about declining consumer sentiment and rising delta variant COVID cases," Ratiu says.

15-year mortgage rates
Rates on 15-year fixed-rate loans ticked up an average to 2.16% last week, from 2.15%. They're not far from their recent all-time low average of 2.10%.

Fifteen-year mortgages are a popular choice for refinance loans. And because of the way averages work, 15-year loans can be found at rates below the current average of 2.16% — right around 2%, or even lower.

The shorter-term home loans come with much higher monthly payments than 30-year mortgages. But borrowers pay off their loans more quickly and can save big on interest.

A year ago, the 15-year fixed was averaging a much steeper 2.54%.

5/1 adjustable mortgage rates
The cost of 5/1 adjustable rate mortgages, or ARMs, has slipped.

A 5/1 ARM last week had an average introductory interest rate of 2.43%, down from 2.44% the week before, Freddie Mac says. At this time last year, 5/1 ARMs were considerably more expensive, carrying an average rate of 2.91%.

Adjustable-rate mortgages have two phases. During the first, you pay a fixed rate of interest that's typically lower than you'd get on a 30-year fixed-rate loan. Once that period is up, your ARM rate adjusts, either up or down, at regular intervals.

A 5/1 ARM would have you paying the same mortgage rate for the first five years. After that, your rate will be adjusted every (one) year.

Experts say mortgage rates will climb before long
Mortgage rates are taking a time-out, but borrowers shouldn't get complacent.

As it sees more signs that the economy is improving, the Federal Reserve is likely to start pulling back on its emergency policies that have been keeping interest rates at historic lows during the pandemic, says Realtor's Ratiu.

"This means that we can expect rates to resume their mid-March climb above 3.0% closer to the end of the year, and into 2022," he says.

Freddie Mac recently predicted that 30-year fixed-rate mortgages will average 3.4% by late 2021 — then keep rising throughout 2022, on the way to hitting an average 3.8% by the end of next year.

So, time may be running out for homeowners to slash their mortgage payments by refinancing. A recent Zillow survey found more than three-quarters of homeowners never refinanced over the last year of ultra-low rates; nearly half of those who did are saving $300 or more per month.

How to catch a low mortgage rate while you can
If you've been holding off on refinancing but decide it's finally time to stop procrastinating, take these steps to score the lowest possible mortgage rate.

The best rates typically go to borrowers with the strongest credit, so review your credit score to see where you stand. These days, it's very easy to check your credit score for free — so take a look and determine if you need to improve your credit standing before you start seeking out loan offers.

Mortgage lenders may not want to work with you if you're already carrying multiple high-interest debts, including on credit cards. Consider rolling those balances into a lower-interest debt consolidation loan, to cut your interest costs and eliminate your debt faster.

Once it's time to shop for a mortgage, gather offers from multiple lenders to find the best rate for your area and for a person with your credit profile. Studies from Freddie Mac and others have found that comparing at least five offers is key to securing the most favorable rate on a mortgage.

Then, a little extra comparison shopping could help you uncover a better deal on your homeowners insurance that might save you hundreds of dollars a year.

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