30-year mortgages

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The average rate on America's most popular home loan — the 30-year fixed-rate mortgage — has dropped to 2.97%, from 3.04% last week, mortgage giant Freddie Mac reported on Thursday.

Rates are the lowest since late February.

"The drop in mortgage rates is good news for homeowners who are still looking to take advantage of the very low rate environment," Sam Khater, Freddie Mac’s chief economist, says in the report.

Last year at this time, 30-year rates were averaging 3.33%. This could be one of the final opportunities to turn historically low mortgage rates into big savings before borrowing costs start rising again, which is what analysts are expecting.

Freddie Mac forecasts the average 30-year fixed-rate mortgage rate for all of 2021 will be 3.2%, and that it will rise to 3.7% in 2022.

15-year mortgages

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The 15-year fixed-rate mortgage, a popular option for borrowers who are refinancing or who can afford higher monthly payments, is averaging 2.29%. That's down from 2.35% last week and 2.86% one year ago, according to Freddie Mac’s 50-year-old survey.

Before the pandemic, 15-year mortgages had never fallen below an average 2.72%. And that was more than four years ago.

Rates have slipped from recent surges that reflected investors' feelings that the economy was strengthening. Now, "rising COVID-19 cases may have tempered some investor optimism," says Zillow economist Matthew Speakman.

Treasury bond rates, which influence what consumers pay for mortgages, were rising sharply last month as markets felt bullish on the economy. But those bond yields have done an "about-face" since mid-March, Realtor.com’s chief economist Danielle Hale says.

5/1 adjustable rate mortgages

The 5/1 adjustable rate mortgage, which is tied more to the prime rate than to Treasury yields, has increased to an average 2.83%. Last week, it averaged 2.80%.

It’s still well below where it was a year ago, when it was averaging 3.28%.

The rates on adjustable mortgages — or ARMs — fluctuate after a period of time determined at the start of a loan. A 5/1 adjustable rate mortgage, for example, will have a set rate for five years and then can change every (one) year.

What the drop in mortgage rates means for you

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The dip in mortgage rates has come at a good time for would-be homebuyers. The supply of homes for sale, which has been ridiculously tight, is loosening thanks to a big increase in new listings, Hale says.

Homeowners who may have felt leery about allowing strangers into their houses during the pandemic can now take some solace in knowing that millions of Americans are being vaccinated.

Meanwhile, lower-income homeowners, a group that's generally less likely to consider a refinance, now have another chance to do that, says Freddie Mac's Khater.

"Low and declining mortgage rates provide these homeowners the opportunity to reduce their monthly payment and improve their financial position," he says.

How you can find the best mortgage rates

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If you've been procrastinating about refinancing, the return of rates below 3% could be offering you your last, best chance to trade in your loan and save thousands over the coming years.

Research released this week by mortgage technology and data provider Black Knight shows that over 13 million homeowners could benefit from a refi and save an average $283 a month.

The company says the best refi candidates hold 30-year mortgages, have at least 20% equity in their homes, and are current on their payments. They also should also 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.

To be sure, the lowest rates go to borrowers with the best credit scores. If you haven’t checked in a while, it’s easy to peek at your credit score for free.

Comparison shopping works wonders for finding the best mortgage rate. Studies have found that borrowers who seek out loan offers from at least five different lenders can save thousands over time.

And don’t miss out on other ways to save. When your homeowners insurance policy comes up for renewal, gather quotes from multiple insurers to make sure you've got the best price on your coverage.

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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