30-year mortgages

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The average rate on the popular 30-year fixed-rate mortgage has fallen to 3.13%, down from 3.18% last week, mortgage giant Freddie Mac reported on Thursday.

The downward move is the result of a modest decline in U.S. Treasury yields, the interest rates the government pays to borrow money. The yield on the Treasury's 10-year note has a major influence on what Americans pay for home loans.

The lower rates, combined with a strong rebound in the job market, should bolster demand for homes and may prompt a new refinance wave, says Freddie Mac chief economist Sam Khater, in a news release.

“The drop in rates creates yet another opportunity for those who have not refinanced to take a look at the possibility,” he says.

Rates have almost never been this low. Last year, the average 30-year fixed mortgage rate was 3.33%, and two years ago it was above 4%.

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15-year mortgages

The average rate on a mortgage with a 15-year term has slipped to 2.42%, down from 2.45% a week ago, according to Freddie Mac's 50-year-old survey.

The shorter-term of loans are popular with homeowners refinancing 30-year mortgages. A 15-year refi loan can slice your interest costs and help you pay off your home sooner than you originally expected.

Like 30-year mortgage rates, the 15-year rates also are historically low. A year ago, the typical 15-year loan had a rate of 2.77%.

Rates have backed off after recent surges that reflected investors' positive feelings about the economy. In times of economic improvement, investors pump money into the stock market, and yields on government bonds rise.

5/1 adjustable rate mortgages

The 5/1 adjustable rate mortgage, which is more closely tied to the prime rate than to the interest on Treasury bonds, has increased to an average 2.92% from 2.84% last week. A year ago, the loans averaged 3.4%.

Adjustable rate mortgages, or ARMs, “adjust” after a period of time that’s determined at the start of the loan.

With a 5/1 ARM, your rate is fixed for the first five years and then can change every (one) year.

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Rates went too high, too soon?

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The sharp upward movements in mortgage rates earlier this year may have represented an overly upbeat expectation that the economy was ready to come roaring back, says Simon Stevenson, a professor of real estate at the University of Washington.

"You had the vaccine coming in and the change in the administration, which changed a lot of people’s sentiment on how the vaccine rollout was going to go, and probably some over-optimism in how easy this would be," Stevenson says.

Rates over the next month or two could remain relatively stable, and may even show a slight downward trend, he says.

But that will still leave homebuyers facing other challenges, including rising list prices, bidding wars and a shrinking supply of homes on the market.

The shortage of inventory will continue to drive up prices, says Steven Ho, a senior loan officer with Quontic, an online bank and mortgage lender. But he says home shoppers, and homeowners who haven't yet refinanced, should take advantage of the historically low rates while they’re available.

“Rates are still fantastic in the 3s,” Ho says. “We just can’t be greedy anymore.”

Take these steps before you borrow

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If you’re ready to start hitting open houses or apply for a refi loan, be prepared by knowing what your credit score is.

If you’re not sure, it’s easy to check your credit score for free. You can land a lower mortgage rate if you have a primo credit score.

Shopping around helps, too. Compare offers from at least five mortgage lenders to find the lowest rate in your area.

And don't miss out on opportunities to save in other ways.

When it's time to buy or renew your homeowners insurance, gather rate quotes from multiple insurers and comparison shop — to get the best price for your policy.

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