30-year fixed mortgage rates

The average interest rate on a 30-year fixed-rate mortgage spiked to 3.45% last week, up from 3.22% the week earlier, mortgage giant Freddie Mac is reporting.

One year ago, the 30-year rate was averaging 2.79%, just above the all-time low of 2.65%, which hit in the first week of January 2021.

But a lot has changed since then — namely inflation and the Federal Reserve’s response to combating it.

Overall inflation rose 7% last month — a 40-year high — amid a surge in demand for consumer products and an ongoing supply chain backlog.

“Mortgage rates rose across all mortgage loan types, with the 30-year fixed-rate mortgage increasing by almost a quarter of a percent from last week,” says Sam Khater, Freddie Mac’s chief economist.

“This was driven by the prospect of a faster than expected tightening of monetary policy in response to continued inflation exacerbated by uncertainty in labor and supply chains.”

15-year fixed-rate mortgages

The rate on a 15-year fixed mortgage averaged 2.62% last week, up from 2.43% in the previous week, Freddie Mac says.

One year ago, these shorter-term loans were averaging 2.23%.

But the Freddie Mac numbers are simply averages, meaning higher — and even lower — rates are out there. Some lenders are advertising 15-year refi loans at 2% and 30-year refis at under 3%.

If you’re a homeowner who’s willing to take on higher monthly payments, you could potentially save a lot of money in interest charges over the life of your loan by trading in a 30-year mortgage into a 15-year.

5-year adjustable-rate mortgages

The rate on a five-year adjustable mortgage (ARM) averaged 2.57% last week, up from 2.41% the week earlier.

Last year at this time, five-year ARMs were averaging 3.12%.

ARMs typically start out with lower rates than fixed-rate mortgages. But after a period of time, an ARM starts to adjust — that is, the rate moves up or down in sync with the prime rate or another benchmark.

Say you financed your home with a popular 5/1 ARM — which starts with a fixed rate for five years. You might want to consider refinancing into a more stable loan that has a longer-term fixed rate now that borrowing costs are trending higher.

How borrowers are responding to the rising rates

Home buyers seem to have gotten the message that rates aren’t likely to fall back down. New home loan applications are up, according to the latest report from the Mortgage Bankers Association.

“Buyers are pouring into the market to claim a home before mortgage rates rise further as new listings slow to a trickle,” says Daryl Fairweather, chief economist at Redfin.

At today’s 30-year mortgage rate, buyers of a median-priced home are paying some $219 more per month than they were a year ago, says George Ratiu, manager of economic research for Realtor.com. That’s over $2,600 annually.

“Real estate markets are unseasonably active this January, as many buyers respond to the signals of rising rates and prices by seeking to find the right home and lock in a fixed-rate mortgage payment,” Ratiu says.

Applications to refinance homes, however, are at their lowest point since January 2020.

“Rates at these levels are quickly closing the door on refinance opportunities for many borrowers,” says Joel Kan, the lead economic and industry forecaster for the Mortgage Bankers Association.

What’s behind the higher rates

With sky-high inflation, the Federal Reserve has been on the hot seat to temper some of the demand that’s leading to higher prices on cars, appliances and other consumer goods.

The central bank recently said it would raise interest rates several times this year and stop buying bonds and mortgage-backed securities to help put a lid on the runaway costs.

“If we see inflation persisting at high levels longer than expected, if we have to raise interest rates more over time, we will,” Fed Chair Jerome Powell said last week at his second-term nomination hearing in front of the Senate Banking Committee.

And even with rising COVID-19 cases from the fast-spreading omicron variant, the economy’s future continues to look good.

“The mild impact of the omicron wave, despite the high number of cases, points toward a brighter post-pandemic horizon, a sentiment which underpins a more bullish outlook on the economy,” Ratiu says.

How to secure a favorable mortgage rate

If you took out your mortgage when rates were even higher than they are today — or want to refinance from a 30-year to 15-year home loan — you’ll want to ensure you’re doing all you can to get the lowest rate.

That means comparing offers from at least five lenders, which has been shown to maximize your savings on a refi.

Lenders will want to see strong credit histories. If you haven’t seen your score in a while, it’s easy to review your credit score for free.

If your credit could use some work — perhaps you’ve accumulated a bunch of new debt during the pandemic — you might consider rolling those credit balances into a lower-interest debt consolidation loan. By doing so, you can reduce your interest costs and potentially eliminate the debt faster.

And if you’re not a candidate for a refi, there are other ways to lower your homeownership costs. When it comes time to buy or renew homeowners insurance, flex your comparison shopping muscles. You might just find a lower rate on your coverage.

About the Author

Nancy Sarnoff

Nancy Sarnoff

Freelance Contributor

Nancy Sarnoff is a freelance contributor with 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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