Mortgage rates drop below 3% again, which makes refinancing even better
Homeowners who postpone refinancing because of the recent rise in mortgage rates now have more reason to take out a new loan.
A long-term survey shows that interest rates have fallen again, with the average 30-year mortgage being below 3% again. This has proven to be a magic number for homeowners: In the past three months, refinancing activity has declined whenever the typical 30-year fixed-rate mortgage has hit 3% or more.
Now that rates are back below line, about 14 million homeowners have the potential to save an average of $ 287 per month by refinancing, mortgage technology and data provider Black Knight said.
30 year mortgage
The average 30-year fixed-rate mortgage rate fell to 2.98% last week, mortgage giant Freddie Mac reported Thursday. That is less than the previous week’s mark of 3.02%. A year ago, the 30-year festival averaged 3.07%.
Although interest rates are above January’s record low of 2.65%, they are still lower than ever before the COVID-19 pandemic. With the economy recovering and inflation warming, it is unlikely that today’s rates will fall much further.
Danielle Hale, chief economist at Realtor.com, believes rates will move in the other direction – averaging 3.4% by year-end.
“We are at such a low level that 3.4% will be a significant increase,” she said in an interview. “The homebuyers will notice this when they calculate their monthly mortgage payment.”
The same applies to homeowners who are considering refinancing to reduce costs.
15 year mortgage
Freddie Mac says interest rates on 15-year mortgages have also fallen.
Last week’s average was 2.26%, down from 2.34% a week earlier. At that time, a year ago, the interest rates on 15-year loans averaged a steeper 2.56%.
George Ratiu, Senior Economist at Realtor.com, says interest rates are volatile as investors try to get a clear idea of where the US economy is headed in the near future.
“Financial markets are trying to balance improvements in unemployment claims and other economic indicators against changes in real estate markets and comments from Federal Reserve officials about the bank’s expected schedule for monetary tightening in the face of rising inflation,” Ratiu said.
5/1 adjustable rate mortgages
5/1 adjustable rate mortgage rates (ARMs) have seen a slight upward movement, rising from 2.53% to 2.54% on average last week. A year ago, the average interest rate for 5/1 ARMs was 3%.
These loans tend to initially come with lower interest rates than their 30 year fixed rate loans, in exchange for the risk borrowers take.
With 5/1 ARMs, you pay a fixed interest rate for the first five years, then the interest rate “adjusts” every year. Your mortgage rate could go down and save you money, but it can also go up and cost you more.
Given the unpredictability, homeowners often refinance into a stable fixed-rate mortgage when the ARM introductory period ends.
Rates are expected to rise shortly
With surging inflation and positive economic data – like the 850,000 new jobs created in June – there is a growing feeling that the Federal Reserve may need to start raising rates sooner.
“Investors now expect the steps to tighten monetary policy to be initiated earlier than previously expected and somewhat lower fiscal incentives than at the beginning of the year,” writes Zillow economist Matthew Speakman.
While the Fed has only an indirect impact on long-term mortgage rates, today’s low 30-year rates for US borrowers could be as good as possible.
“We expect rates to rise around 3.0% in the next few weeks until the Fed sets a clearer schedule for the repayment of its mortgage-backed security purchases,” said Ratiu of Realtor.com.
Find a cheap loan while it’s still available
A recent study by Zillow found that 78% of homeowners have foregone refinancing their mortgages at extremely low rates in the past 12 months.
That’s a lot you don’t want to be part of.
If you’re still weighing the benefits of refinancing, there are a few things you can do to improve your chances of getting below 3% interest rates while solving quotes from lenders.
Take a look at your credit score for free and see if you need to upgrade it a few notches. The most desirable interest rates are generally offered to homeowners who have demonstrated responsible credit use.
Once your credit is in good shape, start looking for the best credit. Studies by Freddie Mac and others have found that comparing at least five mortgage offers is the key to saving on your refinance.
When you apply for a mortgage, lenders want to make sure your cash flow is stable enough that you can afford your monthly payments. You won’t have a lot of confidence if you already have several high-yield debts. Consider consolidating all of your balances into a single, lower-interest debt consolidation loan.
If a refi turns out to be out of the question – and there’s no shame if it doesn’t – you have other options to cut the cost of owning a home. When you renew your homeowners insurance, get quotes from multiple insurers and compare them. Why pay more than necessary?