As mortgage rates rise above 3%, the window for refinancing savings narrows

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As mortgage rates rise above 3%, the window for refinancing savings narrows

Mortgage rates continue to accelerate, increasing for the third week in a row and reaching their highest level since April, according to a widely followed survey.

But that shouldn’t come as a surprise. Americans have been warned of further increases as the economy has improved. And with consumer confidence rising and COVID-19 cases declining, anyone who thinks rates could drop below 3% is likely in denial.

Depending on what happens at the Federal Reserve’s meeting next month, homeowners could blame themselves for not refinancing their mortgage sooner.

If you do not have refinanced at a lower rate yet there are still savings to be made for homeowners who bought when rates were much higher.

30-year fixed mortgage rates

Red block percentage balancing and house model on the little swing

Andrey_Popov / Shutterstock

The average interest rate on a 30-year fixed-rate mortgage jumped to 3.14% for the week ending October 28, from 3.09% a week earlier, Freddie Mac reported Thursday. A year ago, popular mortgage lending averaged 2.81%.

Mortgage rates follow 10-year Treasuries, which have risen due to inflation, supply chain constraints and signs of a stronger economy, said Sam Khater, chief economist at Freddie Mac.

Homebuyers, however, remain on the hunt because rates remain at historic lows.

“Purchase demand remains strong, showing that there is latent purchase demand among consumers,” Khater said.

If you’re shopping now, there are reasons to feel better about the process than if you were shopping earlier this year.

The market is still busy, but the frenzy fades as more homeowners list their homes and prices moderate, says George Ratiu, director of economic research for Realtor.com.

“A good number of cities that experienced bidding wars at the start of the year find a calmer real estate landscape, where price drops are bringing sky-high asking prices back to earth,” Ratiu said.

15-year fixed mortgage rates

The 15-year fixed-rate mortgage averaged 2.37% last week, down from 2.33% the week before, according to the survey.

Despite the increase, the rate is not very far from a year ago when it averaged 2.32%.

Borrowers often take out these shorter-term loans when they refinance. Depending on how much equity you’ve built up in your home, you might end up paying more each month with a 15-year loan, but your lifetime interest costs will be much lower.

5-year adjustable mortgage rates

ARM adjustable rate mortgage papers in the office.

Vitalii Vodolazskyi / Shutterstock

Five-year variable rate mortgage rates were on average 2.56%, down from 2.54% a week earlier. A year ago, the 5-year MRA was on average 2.88%.

Despite the increase, ARMs are still cheaper than a year ago, when the average rate was 2.89%. Variable rate loans start with fixed interest rates for a period of several years. They can then go up or down at regular intervals.

A 5/1 ARM, for example, starts with a fixed interest period of five years and then adjusts, up or down, once a year.

Where do the rates move from here?

The Federal Reserve kept rates low by buying billions of dollars in Treasury bonds and mortgage-backed securities.

In light of the economic recovery and rising inflation, the Fed has indicated it is ready to curb its buying spree.

Americans are expected to get more clarity after its meeting in early November to discuss monetary policy.

“With the Fed expected to announce a cut in its asset purchases in light of stronger employment and higher inflation, I expect rates to continue to rise,” Ratiu said. .

But the economy can be a wild card.

The last report US economic growth has been the weakest since the start of the pandemic recovery. And mortgage rates usually drop when the economy is struggling.

“For some time now, I have been saying that we will have periods of falling mortgage rates, writing Peter Warden, editor of The Mortgage Reports. “But I always expect these to be brief. And for the future, the increases will greatly exceed them. “

How to get a low rate while you can

If the recent uptrend continues, this may be a good time to lock in a still low rate.

A recent study by Zillow found that nearly half of all homeowners who refinanced between April 2020 and April 2021 were able to reduce their monthly payments by at least $ 300.

If you think you might benefit from a refi – or if you are buying a home – be sure to compile quotes from several lenders. Studies have shown that comparing five offers is the key to getting the best deal on a mortgage.

The lowest rates usually go to borrowers with the healthiest credit history. So, start by examining your credit score, which you can easily do for free.

If you think a lender might laugh at your request because you have too much debt, consider bundling them into one Single low interest debt consolidation loan to increase your chances of getting a mortgage.

If you can’t refinance, there are other ways to lower the cost of homeownership. When renewing your home insurance, take some time to collect quotes from several home insurers to see if a cheaper rate exists.

This article provides information only and should not be construed as advice. It is provided without warranty of any kind.


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