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Mortgage rates are standing still, but higher borrowing costs are not far away

Mortgage rates are standing still, but higher borrowing costs are not far away
Mortgage rates are standing still, but higher borrowing costs are not far away

Mortgage rates are taking a breather, having shown little movement up or down over the past few weeks, a widely followed survey shows.

That's giving homebuyers and refinancing homeowners more time to lock in money-saving rates before they evaporate.

There are good reasons to believe rates will start heating up again. The latest: Inflation just hit a nearly 40-year high, and multiple reports forecast today’s historically low rates are likely to head north in the coming weeks.

30-year fixed mortgage rates

close up young man hand touching house's model for check and summary expense of home loan mortgage for refinance plan , people lifestyle concept
chainarong06 / Shutterstock

The interest rate on a 30-year fixed-rate mortgage averaged 3.10% last week, down just a touch from 3.11% the previous week, mortgage giant Freddie Mac is reporting.

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One year ago, the survey had 30-year fixed-rate mortgages averaging 2.71%.

For now, fears over the omicron variant have kept rates from spiking. But inflation — which soared 6.8% in November, the fastest pace since 1982 — along with the Federal Reserve’s pullback on recent bond-buying policies that have kept borrowing costs low, mean rates are likely to rise.

“This rapid inflation is the reason higher mortgage rates are expected in 2022,” says Lawrence Yun, chief economist of the National Association of Realtors.

The Fed will have to raise interest rates to contain rising prices on a bevy of consumer goods, Yun says. Multiple forecasts put the average 30-year fixed-rate mortgage near 4% by the end of next year.

15-year fixed mortgage rates

The average interest rate on a 15-year fixed-rate mortgage rate was 2.38% last week, down just a tad from 2.39%, Freddie Mac says.

This time last year, 15-year loans were averaging 2.26%.

The 15-year fixed is popular for refinancing, because the shorter term means much less in total interest. Monthly payments, however, are higher than with a 30-year mortgage, so the 15-year loans are not for everyone.

Bear in mind that Freddie’s rate figures are averages. Some lenders are quoting lower 15- and 30-year rates — under 3%, and even under 2%.

5-year adjustable mortgage rates

Rates on five-year adjustable-rate mortgages averaged 2.45% last week, down from 2.49% the previous week. A year ago at this time, the loans were averaging a much steeper 2.79%.

ARMs have rates that can change after a period of time determined at the start of the loan. If you have a 5/1 ARM, for example, you'll enjoy five years of fixed interest. Then your rate can adjust — up or down — every (one) year after that.

Refinancing to a fixed-rate loan eliminates the risk of being stuck with higher monthly payments when rates do rise.

'Window of opportunity' will shrink

An aerial top down view of luxury bungalow house
Syafiq Adnan / Shutterstock

Millions of homeowners still have an opportunity to slash their housing costs by refinancing. And some of them have gotten the message, based on new data from the Mortgage Bankers Association.

Refi applications in the most recent week were up 9% compared with the previous week, the trade group says.

“Borrowers are continuing to act on these opportunities, but if rates trend higher as MBA is forecasting, the window of opportunity to refinance will continue to get smaller,” Joel Kan, the group's forecaster, says.

Assuming omicron doesn’t become a serious problem, rates could easily climb in the weeks ahead, says Peter Warden, editor of The Mortgage Reports.

“As long as investors have grounds for optimism about omicron, mortgage rates are likely to drift slowly higher,” he writes.

Finding the best rate on a refi

Payday. Concentrated attentive millennial spouses sitting on couch at home discussing possibility of taking out a refinance mortgage loan.
fizkes / Shutterstock

During the first half of this year, homeowners jumped on the refi train. Those who were able to refinance 30-year fixed-rate home loans into new ones have saved over $2,800 in mortgage payments annually, according to Freddie Mac research.

To lock in the lowest interest rate available, you'll have to do some homework.

The best rates are typically reserved for borrowers with the strongest credit. It’s easy today to check your credit score for free.

If you want to move ahead with a mortgage refinance, be sure to compare loan offers from multiple lenders to find the lowest rate for your area and for a person with your credit profile. Studies from Freddie Mac and others have found comparing five rate quotes seems to be the magic number for getting the best deal on a mortgage.

If a refi isn't possible or something you want to do, there are other ways to cut the cost of homeownership. When it's time to renew your homeowners insurance, always get quotes from multiple insurers, to make sure you're not overpaying.

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