Mortgage rates, which recently dipped below 3% again — delighting home shoppers and homeowners looking to save on a refinance — have surged back above that line, according to a long-running and closely followed survey.
The increase is meaningful, because rates have been so cheap for so long that many Americans may now be assuming that ultra-low mortgage rates will be there whenever they're ready to buy a home or pull the trigger on a refi.
It doesn't work that way. To be sure, today’s rates are still in historically low territory, and refinance rates in the "lower 2s" are still available. But forecasts, including a brand-new one, show a steady rise in mortgage rates may be getting underway.
30-year fixed mortgage rates
The average interest rate on a 30-year fixed-rate mortgage rose last week to 3.05%, from 2.99% a week earlier, marking its highest point since April, mortgage giant Freddie Mac reported. A year ago at this time, the 30-year rate averaged 2.81%.
Sam Khater, Freddie Mac’s chief economist, says rates are expected to continue “a modest upswing” amid rising inflation due to the ongoing pandemic and the Federal Reserve’s recent decision to tighten monetary policy.
Home shoppers still have plenty of access to favorable mortgage rates, but waiting to buy or refinance at an even lower rate could prove to be a losing strategy.
"Historically speaking, rates are still low, but many potential homebuyers are staying on the sidelines due to high home price growth," Khater says. "Rising mortgage rates combined with growing home prices make affordability more challenging for potential homebuyers."
15-year fixed mortgage rates
The average 15-year fixed-rate mortgage also shot higher last week, to 2.30% from 2.23%, Freddie Mac says.
Despite that uptick, the typical rate remains below where it was last year at this time, when 15-year loans were averaging 2.35%.
The shorter-term mortgages with dirt-cheap rates are popular among refinancing homeowners. And while going from a 30-year to 15-year loan may mean higher monthly payments, the lifetime interest costs will be far less.
5-year adjustable mortgage rates
The rate on a five-year adjustable-rate mortgage was up, too, averaging 2.55%, compared with 2.52% the previous week. A year ago, these loans averaged 2.90%.
Adjustable-rate mortgages (ARMs) begin with fixed interest rates for a period of years, followed by increases or decreases at predetermined intervals.
A 5/1 ARM, for example, starts with a fixed five-year interest period and then adjusts every (one) year after that.
New forecast predicts more rate increases
Experts are warning that higher borrowing costs are on the way, as the Federal Reserve moves to address surging inflation by pulling back on its policies that have kept interest rates cheap during the pandemic.
“With inflation at a 30-year high and holding, mortgage rates are expected to continue rising,” says George Ratiu, manager of economic research for Realtor.com.
A new Freddie Mac forecast looks for 30-year fixed mortgage rates to hit an average 3.2% over the last three months of this year, then rise steadily throughout 2022 — to 3.7%, on average, by the end of next year.
Depending on the health of the economy in the months ahead, Washington, D.C., Realtor Corey Burr says mortgage rates could go as high as 4% in the new year.
For buyers, rising home prices also continue to be top of mind.
“Buyers are hoping the seasonally slower end of the year cools off the multiple bid situations on the best properties, and they are hoping interest rates don’t spike up another quarter or half percent,” says Burr, of TTR Sotheby’s International Realty.
Alternatively, sellers are hoping the pandemic-fueled real estate boom continues long enough for them to find buyers willing to pay top dollar.
How borrowers can lock in a low rate now
Though rates are going back up, the increases, so far, have been incremental. Homeowners could very well still benefit from a refinance.
A recent study found almost half the homeowners who refinanced between April 2020 and April 2021 were able to cut their monthly mortgage payments by $300 or more.
If you decide you may benefit from a refi — or if you're buying a home — be sure to compare rates from multiple lenders. Studies from Freddie Mac and others have found that five lenders seems to be the magic number for getting the best deal on a mortgage.
The lowest rates generally go to borrowers with the strongest credit histories. So, start by reviewing your credit score, which you can easily do for free.
If your score needs work because of high-interest debts that accumulated during the pandemic, you may want to consider a debt consolidation loan — to help reduce the amount of interest you pay and wipe out your debt faster.
If you’re not able to refinance, there are other ways to cut the cost of homeownership. By taking a little time to check quotes from several home insurers, you could end up saving hundreds of dollars.
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.