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Mortgage rates dig in above 3%, but the worst may be over for now

Clayton Jarvis
·4-min read
Mortgage rates dig in above 3%, but the worst may be over for now
Mortgage rates dig in above 3%, but the worst may be over for now

As mortgage rates have been on a steady climb since January, so have the anxiety levels of prospective first-time buyers, and homeowners who sat out the great refinance boom of 2020.

Neither group will find much comfort in news that a popular, long-running survey now shows average 30-year mortgage rates have popped above 3%, same as what a few other surveys have already reported.

But experts are indicating that this year's relatively quick rise in rates should begin tapering off. That hopeful tidbit should settle the nerves of both purchasers who are house hunting, and homeowners who are still looking to refinance.

30-year mortgages

The percent symbol and real estate on a background of money . The concept of price changes on the real estate market
1599686sv / Shutterstock

The 30-year fixed rate mortgage — the runaway favorite among American consumers — has jumped to an average 3.02%, up from 2.97 percent% last week, mortgage giant Freddie Mac reported on Thursday.

It's the first time since July of last year that Freddie Mac's 50-year-old survey has put the benchmark mortgage rate above 3%. But rates are significantly lower than a year ago, when the average was 3.29%.

Mortgage rates have been rising as encouraging news for the economy has caused the interest on Treasury bonds to surge, explains Realtor.com senior economist George Ratiu.

“With the U.S. president indicating that there should be enough COVID vaccines available for every American by May, and the U.S. House of Representatives passing additional stimulus in the latest bill, investors retreated from the bond market, driving interest rates higher,” Ratiu says in a statement.

15-year mortgages

Rates on other major types of mortgages are mixed this week.

Would-be borrowers with their eyes on a 15-year fixed-rate mortgage haven't had rising rates to contend with. At 2.34%, the average for a 15-year loan is unchanged from last week, Freddie Mac says.

The shorter-term mortgages are often a go-to loan for refinancing. As with 30-year fixed-rate mortgages, today’s rates on the 15-year option are still far lower than they were a year ago, when the average was 2.79%.

5/1 adjustable rate mortgages

The typical rate on a 5/1 adjustable-rate mortgage has dropped to 2.73% this week, down from 2.99% a week ago and considerably lower than last year at this time, when 5/1 ARMs were averaging 3.18%.

The rates on those loans are fixed for the first five years and then "adjust," either up or down, every (one) year.

The likely road ahead for mortgage rates

Nicely trimmed and manicured garden in front of a luxury house on a sunny summer day. Street of houses in the suburbs of Canada.
rawmn / Shutterstock

Experts indicate that 30-year mortgage rates over 3% may be the new normal, less than two months after rates hit an all-time-low average of 2.65% in Freddie Mac's survey. But the worst may be over for now, says Freddie Mac chief economist Sam Khater.

"The rise in mortgage rates over the next couple of months is likely to be more muted in comparison to the last few weeks," Khater says.

Zillow economist Matthew Speakman is ready to say that the mortgage rates "frenzy of late February is now behind us," though he agrees with Khater that rates will continue to face some upward pressure.

"That said, the pace of this upward momentum is far from certain — negative pandemic-related developments or surprisingly weak February jobs numbers are two factors that could keep mortgage rates in check or even nudge them back downward," Speakman says.

The government's employment report for February will be released on Friday.

Get in the game

Mother and son in front yard playing with soccer ball
Hurst Photo / Shutterstock

Though it's tough to predict just where mortgage rates will go, Realtor.com's Ratiu has this warning: "For homeowners who could still benefit from refinancing at these rates, the window may be closing."

He adds that rock-bottom mortgage rates aren't likely to return, at least not anytime soon. But keep things in perspective: During the first week of March 2001, 30-year fixed-rate mortgages cost borrowers over 7%, and 10 years ago they were paying close to 5%.

If people could afford those elevated rates, it’s worth doing some research to see if you could swing a refinance at today’s more palatable ones. Millions of homeowners could still save hundreds of dollars a month by refinancing to a lower-rate loan, the mortgage data and tech company Black Knight reported recently.

Keep in mind that the rates in Freddie Mac's report are averages. That means plenty of lenders are offering 30-year rates lower than 3.02%, so do some thorough comparison shopping to find the lowest rate you can get.

Also, review your credit score — you can easily check your score for free. With a good score, you'll look attractive to lenders and will find it easier to score a great rate.

And, be sure to take advantage of other ways to shave a little off the overall cost of homeownership. When did you last take the time to compare home insurance rates, to see if you're paying too much?

When it comes to homeownership and saving money, it pays to turn over every stone. You never know what you’ll find.