Rates catapult off their record lows

STACKED US QUARTER COINS ON WOODEN TABLE WITH WHITE ILLUSTRATION SHOWS INCREASING OF INTEREST RATES / FINANCIAL CONCEPT
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Mortgage rates are averaging 2.79% for a 30-year fixed-rate loan, up from last week’s all-time low of 2.65%, mortgage giant Freddie Mac said on Thursday.

But 30-year home loans are still miles below this time last year, when they averaged 3.65%.

This week’s increase appears to be the biggest since the benchmark mortgage rate skyrocketed from 3.36% to 3.65% in mid-March of last year.

Rates are climbing now because the incoming Biden administration seems likely to pass another massive package of coronavirus aid. The potential for more government debt is sending the interest on Treasury bonds upward, with mortgage rates following.

“COVID-relief stimulus may do great things for people in the short term, and for the economy in the longer term, but it does bad things for interest rates (assuming you like low rates, that is),” says Matthew Graham, chief operating officer of Mortgage News Daily.

Where do rates go from here?

Worried businessman wearing surgical face mask checking his smartphone for coronavirus news updates outdoors
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“The path forward for mortgage rates will be dictated by our ability to contain and treat COVID-19, as well as improvement in the labor markets,” says Matthew Speakman, an economist with Zillow.

“A prolonged upward spike is far from inevitable,” he adds.

Rates on other mortgages also increased this week, the Freddie Mac survey shows. The 15-year fixed-rate loan is averaging 2.23%, up from last week’s record-low 2.16%. Those mortgages, often used for refinance loans, remain far below last year, when the average was 3.09%.

Average rates on 5/1 adjustable-rate mortgages, or ARMs, decreased to 3.12% from last week’s 2.75%, still a distance from last year’s 3.44%.

“Borrowers are smart to take advantage of these low rates now and will certainly benefit as a result,” says Sam Khater, Freddie Mac’s chief economist.

How to join the run on refis

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Many homeowners have been doing all of that, as applications for refinance loans have been coming in at nearly double the pace of a year ago, reports the Mortgage Bankers Association.

But more than 19 million mortgage holders are still waiting to refi and could save an average $308 per month with a new loan, according to mortgage technology and data provider Black Knight. Good refinance candidates include those with solid credit scores and at least 20% equity in their homes.

Experts say buyers should gather and compare at least five rate quotes to find the best deal — because rates can vary sharply from one lender to the next.

If you wait too long and miss out on super-cheap mortgage rates, you can find home savings elsewhere. A little comparison shopping can help you get a lower price on your homeowners insurance that could save you as much as $1,000 a year.

About the Author

Ethan Rotberg

Ethan Rotberg

Reporter

Ethan Rotberg is a staff reporter at MoneyWise. His background includes nearly 15 years as a writer, editor, designer and communications professional. He loves storytelling, from feature writing to narrative podcasts. His work has appeared in the Toronto Star, CPA Canada and Metro, among others.

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