30-year fixed mortgage rates
The average interest rate on a 30-year fixed-rate mortgage — America's most popular home loan — fell to 3.09% last week, down from 3.14% the previous week, mortgage giant Freddie Mac reported on Thursday.
A year ago at this time, the 30-year fixed was averaging just 2.78%. That was before COVID-19 vaccinations were widely available, and at a time when the economy was only beginning to see some recovery.
Today, many Americans are back to their pre-pandemic habits, businesses are open and the unemployment rate is falling.
Still, mixed signals about the recovery amid rising inflation and supply chain hiccups have resulted in rate fluctuations. Also contributing: the gyrations in Washington, where President Joe Biden’s infrastructure bill and budget plan remain "works in progress," says Danielle Hale, chief economist of Realtor.com.
"This policy and economic uncertainty prevented another jump in rates [last] week," Hale says.
15-year fixed mortgage rates
The rate on a 15-year fixed mortgage averaged 2.35% last week, Freddie Mac’s survey shows. That’s down from a week earlier, when the typical rate was 2.37%.
A year ago, 15-year loans were averaging 2.32%.
The 15-year fixed has long been a popular choice for refinancing homeowners. The shorter term means you’ll pay less in interest and own your home sooner. However, with a shrunken borrowing time frame, you must make much higher monthly payments.
If you own a home and are ready to refinance, you don't need to go with a 15-year mortgage to bag a rate under 3%. Look around on the web, and you'll easily find 30-year fixed-rate mortgages with below-average rates — in some cases rates well below 3%.
5-year adjustable mortgage rates
The five-year adjustable-rate mortgage — also known as a 5/1 ARM — fell slightly last week, from an average 2.56% to 2.54%.
ARMs have continued to be cheaper than they were last year, when the average rate was 2.89%.
These adjustable-rate loans come with an initial five-year period with a fixed rate. When that time expires, the rate will adjust, either up or down, once a year.
Why rates aren’t expected to keep falling
Sam Khater, Freddie Mac’s chief economist, says rates are likely to go back up — in large part because of the Federal Reserve. The central bank recently announced plans to scale back its pandemic-era strategy of buying billions of dollars' worth of mortgage-backed securities each month to help stimulate the economy and keep rates low.
“We expect future upticks due to stronger economic data and as the Federal Reserve pulls back on its stimulus,” Khater says. “That said, the housing market remains favorable for consumers, as rates remain below pre-pandemic levels and continue to support sustainable purchase and refinance opportunities."
The Fed will likely raise interest rates by the middle of next year, further pushing up mortgage costs, adds Nadia Evangelou, senior economist and director of forecasting for the National Association of Realtors. The trade group expects 30-year fixed rates to average 3.5% by the second quarter of 2022.
Despite the recent drop, Peter Warden, editor of The Mortgage Reports, says mortgage rates should follow a "strong and persistent upward trend," due to the Fed’s plan, higher inflation and a healthier economy amid lower daily COVID-19 cases.
"An improving economy almost always brings higher mortgage rates," Warden writes.
How to secure a low rate while you can
Despite all the warnings of higher mortgage rates, borrowing costs are still near their historic lows.
And a recent study found almost half the homeowners who refinanced their mortgages during the first year of COVID-19 — between April 2020 and April 2021 — were able to reduce their monthly mortgage payments by $300 or more.
If you’re shopping for a loan, compare offers from multiple lenders to find the lowest rate for your area and for a person with your credit profile.
The best rates go to borrowers with the best credit histories. So, start by reviewing your credit score, which you can easily do for free.
If you’re not quite lender-ready because you’re carrying lots of pandemic-related debt, consider rolling those bills into a lower-interest debt consolidation loan.
And there are other ways to cut the cost of homeownership. When your home insurance comes up for renewal, gather quotes from several insurers to see if you can lower your premiums. The same strategy also works well for finding the best price on car insurance.