The interest rate on the nation’s most popular mortgage has dropped for the second week in a row and is now the lowest it’s been since the first part of February, a new report shows.
Cheap mortgage rates are fueling a housing boom, and analysts say home shoppers should pounce on today's historically low rates as soon as they possibly can.
"Mortgage rates typically can’t be locked until after a buyer has a contract on the desired home, and hopefully homeowners can use today’s dip to lock in low rates, if they have the opportunity," says Danielle Hale, chief economist for Realtor.com.
And, homeowners shouldn't miss out on what could be a fleeting chance to save money by refinancing.
The interest rate on a 30-year fixed-rate mortgage — the most common home loan in the U.S. — fell to an average 2.94% last week, from 2.96% a week earlier, mortgage giant Freddie Mac reported on Thursday.
Though rates are up from January's all-time low, they're still among the lowest in history. A year ago, the 30-year fixed was a steeper 3.28%, on average.
Mortgage rates are in a "hot zone," says Corey Burr, senior vice president at TTR Sotheby’s International Realty in Washington, D.C. But as more Americans get back to work and inflation heats up, rates will reverse their downward trend.
"I think we’re going to end the year with 30-year mortgages in the 3.3% to 3.6% range,” Burr says. "And if you think about it, that means the economy is doing better and we’ve gotten out of the woods of the pandemic scare."
The average rate on a 15-year fixed-rate mortgage has dipped to 2.26%, Freddie Mac’s long-running survey shows. That’s down from 2.30% the previous week, and 2.72% a year ago.
These shorter-term loans are a popular option among refinancing homeowners who can afford higher monthly payments or want to slash their lifetime interest costs.
If you already own a home and have been paying down your mortgage, you may qualify for a much lower rate with a refi.
With 30-year mortgage rates back below 3%, mortgage technology and data provider Black Knight says about 13 million Americans could save an average $283 a month by refinancing. That estimate applies to homeowners with 30-year loans who have built up at least 20% equity in their homes.
5/1 adjustable-rate mortgages
The average rate on a 5/1 adjustable-rate mortgage fell to 2.59% last week, down from 2.70% the week before and 3.18% last year.
ARMs typically start out with lower rates than their fixed-rate cousins, but after a period of time the rates can "adjust" up or down. They move in sync with the prime rate or another benchmark.
The loans are called 5/1 ARMs because they are fixed for the first five years and then adjust every (one) year after that.
Beware of rising rates
Would-be borrowers who have been saving for a home should move quickly, rate watchers say.
“The low mortgage rate environment has been a boon to the housing market but may not last long as consumer inflation has accelerated at its fastest pace in more than 12 years and may lead to higher mortgage rates in the summer," says Sam Khater, Freddie Mac’s chief economist.
Kevin Krieger, a professor in the business school at the University of West Florida in Pensacola, also expects to see higher rates in the future.
"If I was in a good financial position to purchase an affordable home then I wouldn’t wait for rate-based reasons," Krieger tells MoneyWise.
As the economy strengthened in April, inflation picked up steam, the government reported last week. The Consumer Price Index, which measures a basket of consumer goods and services, jumped 4.2% from a year earlier.
How to land a low mortgage rate
The last time inflation jumped this much, Realtor's Hale says, the 30-year mortgage was averaging 16.9%.
"While I don’t expect double-digit mortgage rates any time soon, I do expect mortgage rates to follow Treasury yields higher as the combination of abundant supply and concerns about inflation mean that investors expect higher returns," she says.
The yield (interest rate) on the government's 10-year Treasury note recently approached 1.75%, up sharply from 0.92% at the start of the year.
In order to score the most attractive mortgage rate possible — while rates are still low — your credit should be in good shape. Lenders will look favorably on would-be borrowers with scores of at least 720.
If you haven’t seen yours in a while, it’s easy to get a free peek at your credit score online.
When you shop for a house, shop for a lender, too. Studies have shown that getting mortgage offers from five lenders can result in thousands of dollars in savings over the life of your loan.
Keep your comparison shopping skills in your back pocket for when the time comes to buy or renew your homeowners insurance. Get quotes from multiple insurers so you’ll have a great insurance rate, to go along with your low mortgage rate.