What's happened to mortgage rates?

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It was just last week that 30-year mortgage rates dropped to a record-low average of 2.81% in the Mortgage News Daily survey of lenders. On Friday, the site showed rates had climbed sharply and were up to an average 3.14%.

Here's what the quick turnaround in mortgage rates means for a typical borrower: A 30-year, $200,000 mortgage at 2.81% has a monthly principal and interest payment of $823. At 3.14%, the payment is $858, which is $35 more per month, or $420 more per year.

The current rates are the highest since early June, according to MND's data.

Mortgage rates were already climbing this week in reaction to news of stronger-than-expected inflation. But it was the new 0.5% refinance fee from two government-sponsored mortgage giants that pushed things to the next level.

Fannie Mae and Freddie Mac buy or guarantee most U.S. mortgages. They informed lenders that they need the refi fee — which starts Sept. 1 — to protect themselves from higher risks and costs related to the coronavirus pandemic.

An extra $1,400 cost, on average

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This year's historically low mortgage rates have made refinancing a hot topic among homeowners, who have eagerly swapped out their loans to save hundreds of dollars a month and tens of thousands over time.

Refinances are so popular that last week they accounted for almost two-thirds of all mortgage applications, the Mortgage Bankers Association reported.

But the new fee will essentially "raise interest rates on families trying to make ends meet in these challenging times," says Bob Broeksmit, the MBA's president and CEO. He's urging Fannie Mae and Freddie Mac to change their minds.

His trade group says the average borrower will pay an additional $1,400 for a refi loan. But Graham, of Mortgage News Daily, estimates that the new charge coupled with the jump in mortgage rates just made the average refinance $3,000 more expensive.

"There's also a very low chance that this decision could be retracted and re-implemented with a healthier delay, but I wouldn't count those chickens," he writes.

What's a borrower to do?

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If you've been hoping to get around to refinancing your mortgage but just haven't done it, it's probably still a good idea and will cut your housing costs. After all, even at an average 3.14%, rates are still dirt-cheap, historically speaking.

And if you're a good comparison shopper, you might find much lower mortgage rates than the average. United Wholesale Mortgage — America's second-largest home lender — is still advertising a 30-year loan it announced earlier this week, with rates ranging from 2.875% all the way down to 1.999%.

Research from Freddie Mac has found that almost half of all borrowers never bother to shop around for their mortgage rate and grab the first offer they see. That's not the way to get a low rate.

Rates can vary widely from one lender to another. So, experts say you've got to go online and compare rates from at least five lenders if you want to find the best rate in your area that you qualify for.

This tactic also can reward you with major savings next time you receive your homeowners insurance renewal notice. Staying too loyal to your insurer can be costly. Get rate quotes from multiple insurance companies each time, so you'll be certain you're paying the best price for your coverage.

About the Author

Doug Whiteman

Doug Whiteman


Doug Whiteman is the editor-in-chief of MoneyWise. He has been quoted by The Wall Street Journal, USA Today and CNBC.com and has been interviewed on Fox Business, CBS Radio and the syndicated TV show "First Business."

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