Mortgage rates fall to a 6-month low
When rates were rising a few months ago, some experts said 30-year fixed-rate mortgages were headed to an average 4%. But this summer, rates have been moving in the opposite direction.
This week, the 30-year fixed has fallen to an average 2.77%, mortgage giant Freddie Mac reported on Thursday. That's the lowest in almost six months, and it's down from last week's 2.80%.
The current rates aren't too far from early January's average of 2.65%, which was the lowest ever recorded in Freddie Mac's 50-year-old weekly survey.
The survey rates come with an average 0.6 point. One year ago, borrowers were landing 30-year fixed-rate mortgages with higher rates, averaging 2.88%.
Mortgage rates are reflecting investor worries about the course of the pandemic, says Sam Khater, Freddie Mac's chief economist.
"With global market uncertainty surrounding the delta variant of COVID-19, we saw 10-year Treasury yields drift lower and consequently mortgage rates followed suit," Khater says. "This bodes well for those still looking to refinance, renovate or even purchase a new home."
Goodbye refi fee, hello lower rates
Another reason rates have been going down is that last weekend marked the final goodbye to a fee that had been adding 0.5% to the cost of a refinance since late 2020.
Many lenders had been passing along the surcharge to consumers through increases in mortgage rates, of between one-eighth to one-quarter of 1 percentage point (0.125-0.25), according to an analysis by Mortgage News Daily.
A refinance cost the typical homeowner an extra $1,400 because of the fee, the Mortgage Bankers Association said.
Regulators first announced the fee nearly a year ago to help Freddie Mac and Fannie Mae weather the pandemic. The two government-sponsored companies buy most U.S. home loans from lenders, and officials said the firms were facing losses of at least $6 billion from expected defaults and foreclosures related to COVID-19.
In mid-July, the Federal Housing Finance Agency announced that the "adverse market fee" was no longer necessary, and that it would be eliminated as of Aug. 1.
“Eliminating the adverse market refinance fee will help families take advantage of the low-rate environment to save more money," FHFA acting director Sandra L. Thompson said.
Other mortgage rates this week
Rates on other popular types of home loans are mixed this week, Freddie Mac says.
The average for a 15-year fixed-rate mortgage has held steady at 2.10% — an all-time low for a loan that's often chosen for refinancing.
The shorter-term mortgages are much cheaper than they were a year ago, when 15-years were going for 2.44%, on average.
And, rates on 5/1 adjustable-rate mortgages have slid this week. Those loans are known as "ARMs" and have rates that are fixed for five years and then can adjust up or down every year, moving along the same path with a benchmark interest rate, like the prime rate.
ARMs are currently being offered at initial rates averaging 2.40, down from 2.45% last week. Last year at this time, the typical starter rate on those mortgages was 2.90%.
Where do mortgage rates go from here?
Rates have been following the ups and downs of the U.S. coronavirus saga for well over a year, and that's going to continue, says Matthew Speakman, an economist with Zillow.
"A sharp upward move in mortgage rates appears unlikely until we get a better handle on COVID," Speakman says.
But if the past several months have reminded us of anything, it's that mortgage rates can be unpredictable. If you see a good rate and are among the majority of U.S. homeowners who never refinanced over the last year, you'll be smart to grab it — and not hope something better will come along.
A refi can save you a pile of money. A study released Monday by the mortgage data and technology firm Black Knight says 15.1 million current homeowners who haven't yet refinanced can save an average $298 a month by taking out fresh home loans.
Start on your refinance journey by checking your credit score, which you can easily do for free. The best mortgage rates tend to be offered to borrowers with the highest scores, so you may find you need to work on your credit score before you start reaching out to lenders.
Then, shop around by gathering refi offers from at least five lenders. Studies from Freddie Mac and others have shown that reviewing rates from five lenders or more can result in thousands of dollars in savings over the life of your loan.
Don’t be discouraged if you determine that refinancing won't work for you, because there are other ways of cutting the cost of homeownership. When the time comes to buy or renew homeowners insurance, a little comparison shopping among policies could save you hundreds of dollars a year.