30-year mortgages

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The average rate on a 30-year fixed mortgage has edged up to 3.09%, from 3.05% last week, mortgage giant Freddie Mac reported on Thursday. It’s the fifth straight weekly increase, and it puts America’s benchmark mortgage rate at its highest point since June of last year.

Rates are still more favorable today than they were a year ago, when 30-year loans were averaging 3.65%. Two years ago, the average was 4.31%.

“As expected, mortgage rates continued to inch up but are still hovering around 3%, keeping interested buyers in the market,” says Sam Khater, Freddie Mac chief economist, in a news release.

15-year mortgages

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The average rate on a 15-year fixed-rate mortgage — popular with those refinancing — are averaging 2.40% this week, up from 2.38% last week and 3.06 percent a year ago, Freddie Mac says.

Aside from refinancing, 15-year mortgages can make sense for a borrower who is able to make higher monthly payments. The reward is much lower interest costs.

5/1 adjustable-rate mortgages

Rates on 5/1 adjustable-rate mortgages are now averaging 2.79%, up from 2.77% last week and 3.11% a year ago in the Freddie Mac survey.

Adjustable-rate loans often start out at lower rates than fixed-rate mortgages, but after a period of years the rates “adjust” — meaning they can move up or down in sync with the prime rate or other yardstick.

Borrowers may be attracted to an adjustable-rate loan if they don’t expect to hold the property for the full term of the mortgage, or if they expect their income to increase in the coming years.

Why are mortgage rates rising?

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Mortgage rates tend to follow the yield on the 10-year Treasury, which has been rising amid economic improvement.

Effective vaccine distribution efforts, combined with the new round of stimulus checks and other new COVID relief, are fueling optimism over the economy. Investors have been pulling money out of bonds and pouring it riskier investments, including stocks. That’s causing bond prices to drop and their yields to rise.

“Upward pressure on mortgage rates is likely to remain,” says Zillow economist Matthew Speakman, "as increased economic activity and steeper inflation both tend to push rates higher."

But the Federal Reserve isn’t too concerned about inflation. On Wednesday, the central bank left its benchmark federal funds rate untouched and said it was in no rush to hike interest rates.

The Fed also said it would continue buying billions in Treasury bonds and mortgage-backed securities. That could help hold down yields — maybe mortgage rates, too.

Mortgage rates remain attractive for homebuyers, homeowners

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Mortgage rates that are still low by historical standards are motivating homebuyers to jump into the market, despite rising prices and shortages of houses for sale.

“Given the very low inventory environment, competition among potential homebuyers is a challenging reality, especially for first-time homebuyers," Freddie Mac's Khater says.

As for homeowners, they’ve been pulling back on refinancing amid the recent increases in mortgage rates, according to the latest data on mortgage applications. But some 12.9 million mortgage holders still stand to benefit from a refi, the mortgage technology and data provider Black Knight reported earlier this month.

Those with 30-year mortgages who have at least 20% equity in their homes and are current on their payments are "high-quality refinance candidates," Black Knight says. They also should have a credit score of at least 720 and be able to shave at least three-quarters of a point (0.75) off their mortgage rate by refinancing.

Comparison shopping will help you find the best mortgage rate. A Freddie Mac study found borrowers who get quotes from five lenders can save around $3,000 over time compared with someone who gets just one quote.

Shopping around also works well when you're buying or renewing your homeowners insurance. Gathering and comparing prices from multiple insurers can result in hundreds of dollars' worth of savings.

About the Author

Nancy Sarnoff

Nancy Sarnoff

Senior Reporter/Editor

Nancy Sarnoff is a senior reporter and editor at MoneyWise. Previously, she covered commercial and residential real estate for the Houston Chronicle where she also hosted Looped In, a podcast about the region’s growth, development and economy. Her work has been recognized by the National Association of Real Estate Editors and the Society of American Business Editors and Writers.

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