The rate on America’s most popular home loan — the 30-year fixed-rate mortgage — averaged 2.99% last week, up from 2.95% the previous week, mortgage giant Freddie Mac reported on Thursday.
Despite the slight increase, rates remain well below the average 3.18% from one year ago in the long-running survey.
But in its last quarterly forecast, Freddie Mac said the 30-year rate will be averaging 3.4% by the fourth quarter of this year. A few tenths of a percentage point might not seem like a lot, but when you’re budgeting for a mortgage payment — along with all your other household expenses— the difference will be noticeable.
While interest rates are still affordable, double-digit home price gains of the last 10 months have pushed the national median listing price to a new record high of $380,000, says George Ratiu, senior economist with Realtor.com. That translates into a monthly mortgage payment almost $160 higher than in 2020.
Many homeowners have decided it makes better financial sense to refinance their mortgages instead of buying another house. At current mortgage rates, 14.1 million homeowners still have an opportunity to save an average $287 a month by refinancing, mortgage technology and data provider Black Knight recently said.
The average rate on a 15-year fixed-rate mortgage was unchanged last week at 2.27%, according to Freddie Mac’s long-running survey. A year ago, the 15-year rate averaged 2.62%.
Shorter-term loans are popular among refinancing homeowners who can afford higher monthly payments or want to cut their lifetime interest costs.
Sam Khater, Freddie Mac’s chief economist and longtime rate watcher, says the continued low rates make refinancing an "option worth considering."
For buyers, however, competition is fierce.
"Home prices continue to accelerate while inventory remains low and new home construction cannot happen fast enough,” Khater says. “There are many potential homebuyers who would like to take advantage of low mortgage rates, but competition is strong."
5/1 adjustable-rate mortgages
The average rate on 5/1 adjustable-rate mortgages, or ARMs, was 2.64% last week, up from the previous week when the average was 2.59%, Freddie Mac says. A year ago, those ARMs were averaging 3.10%.
Adjustable-rate loans typically start out with lower interest rates than their fixed-rate counterparts, but after a period of time the rates can "adjust" up or down in line with the prime rate or another benchmark.
These mortgages are called 5/1 ARMs because the interest rates are fixed for the first five years and then adjust every (one) year after that.
As the U.S. economy continues its comeback from the pandemic, inflation will pose the greatest risk to today's low mortgage rates, says Eddie Sanchez, a finance professor at the University of South Florida Sarasota-Manatee campus.
"Since inflation erodes the purchasing power of the dollar, mortgage lenders would have to increase mortgage rates over time to offset that decline," Sanchez says. "The reopening of the economy will influence mortgage rates as economic growth pushes wages and consumer spending higher."
Finding the lowest rate out there
With the typical 30-year fixed-rate mortgage still under 3% — though by just a hair — this could be your last, best chance to get a killer rate you’ll be able to brag about to your friends.
Keep in mind that the best rates go to borrowers with the highest credit scores. If you haven’t checked in a while, it’s easy these days to peek at your credit score for free.
Comparison shopping works wonders for finding the lowest mortgage rate available in your area and to a person with your credit score. Studies from Freddie Mac and others have found that borrowers who seek out loan offers from at least five different lenders generally save thousands over time.
While you’re at it, don’t miss out on other ways to hold down your housing costs. When you buy or renew your homeowners insurance policy, gather quotes from multiple insurers to make sure you’ve got the best price on the coverage you need.