Lower mortgage rates, opening the door to a slightly larger refinancing of savings

Lower mortgage rates, opening the door to a slightly larger refinancing of savings

With mortgage rates expected to rise before the end of the year, the opportunity for homeowners to save money by refinancing their home loans may soon fade away.

But borrowers have had more time to act. After remaining virtually frozen for weeks due to the economic uncertainty triggered by the pandemic, the rates of some of America’s most popular mortgage products have fallen again, according to a closely watched survey.

This means another period of historically low mortgage rates. But how long it will last – a few days, a few weeks – is impossible to know.

30-year fixed mortgage rates

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The average interest rate on a 30-year fixed mortgage fell from 2.88% to 2.86% last week, according to mortgage giant Freddie Mac reported Thursday.

Even though the change has been minimal, it’s still more activity than rates have seen in some time.

“It’s groundhog day for mortgage rates because they’ve been basically flat for over two months,” said Sam Khater, chief economist at Freddie Mac. “The rate maintenance model reflects market sentiment that the outlook for the economy has darkened somewhat due to the rebound in new cases of COVID.”

But today’s challenges are just not in the same league as the general panic that shut down much of the US economy last year. And the good economic news has more of an impact on mortgage rates than the bad ones.

Consider this: The government’s latest jobs report was particularly disappointing, as it showed 235,000 jobs had been created in August, far fewer than expected.

But since the report was released on September 3, the 30-year fixed rate has barely budged. In contrast, July’s much brighter jobs report drove mortgage rates up almost immediately.

It doesn’t take a lot of positivity to drive rates up.

15-year fixed mortgage rates

The average rate on 15-year fixed-rate mortgages fell more last week, from 2.19% to 2.12%. At the same time a year ago, the 15-year fixed rate averaged 2.35%.

15-year drop is good news for homeowners consider refinancing. The shorter term means you’ll pay less interest over the course of your loan and own your home sooner than if you opted for a 30-year term.

A shorter loan term means higher monthly payments, so 15-year mortgages aren’t for everyone. But the potential savings make the loans worth considering.

It’s important to remember that Freddie Mac’s numbers are just an average, which means there are lenders. offering even lower rates than what Freddie reported.

5/1 adjustable mortgage rates

Advantages and disadvantages of a fixed rate mortgage compared to a variable rate mortgage.

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Contrary to the trend of tiny declines, five-year variable rate mortgages, or 5/1 ARMs, saw their rates rise last week.

The average rate on a 5/1 ARM dropped from 2.42% to 2.51%. Even though ARM rates are on the rise, they are still much lower than they were around this time last year, when they averaged 2.96%.

ARMs are interesting products. Your interest rate is fixed for the first phase of the loan, but it adjusts, up or down, periodically thereafter.

A 5/1 ARM, for example, begins with a fixed period of five years. Your rate will be adjusted by your lender each year thereafter.

Rates are expected to increase

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No one knows exactly when this will happen, but the end of low mortgage rates and the refi windfall for millions of homeowners is approaching.

Freddie Mac’s most recent rate forecast calls for an average of 3.1% of the 30-year fixed rate this year, implying a steady increase over the next three months. Industry group Mortgage Bankers Association predicts the 30-year fixed rate will hit 3.3% in the fourth quarter of this year – and 4% in the summer of 2022.

Much of what happens to rates depends on the future actions of the Federal Reserve.

The Fed has helped keep mortgage rates low in two ways: by keeping its benchmark interest rate, called the federal funds rate, close to zero; and buying billions of dollars in bonds and mortgage-backed securities.

The federal funds rate is unlikely to budge until the economy is COVID-free, but the Fed could start cutting its buying program before the end of the year.

Corey Burr, senior vice president of TTR Sotheby’s International Realty in Washington, DC, expects the Fed’s cut to increase interest on 10-year Treasuries, which directly affects fixed mortgage rates, about half a percentage point.

“The result will be a corresponding increase of half a point or five-eighths of a point in mortgage rates,” Burr predicts.

How to get an ultra-low rate from a lender

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To make sure you refinance your mortgage at the lowest possible rate, you need to shop around. Lenders can offer very different rates, so take a few moments to compare the rates of at least five lenders and find out who offers the best rate for your budget.

Convincing a lender to offer you a low rate requires a solid credit history. Take a quick, free look at your credit score and see if you would benefit from a little credit rehabilitation before asking for your refi

Once you’ve refinanced your mortgage, you can use the savings to boost your overall finances, either by pay off the debt or by investing through an app that helps you build your portfolio just using “spare currency”.

If refinancing isn’t your thing or isn’t right for you, you can still lower the cost of homeownership. When the time comes to renew your home insurance, obtain quotes from several insurers, to make sure you’re not overpaying.

This article provides information only and should not be construed as advice. It is provided without warranty of any kind.

About Janet Young

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