Rates on America's most popular home loan — the 30-year fixed-rate mortgage — remain within striking distance of their all-time low, according to the latest edition of a long-running survey.
That's giving procrastinating homeowners a new incentive to finally get around to refinancing, and so is this: A new record-low average has been reached for rates on 15-year mortgages, a common choice for refi loans.
Home lending rates have been coming down as lenders have stopped passing along a government fee on refinance loans that just officially came to an end.
30-year mortgage rates
The current average rate on a 30-year fixed-rate mortgage is 2.80%, mortgage giant Freddie Mac reported on Thursday. That’s only a shade higher than it was a week earlier, when the average was 2.78%.
One year ago, 30-year loans were averaging a higher 2.99%.
"As the economy works to get back to its pre-pandemic self, and the fight against COVID-19 variants unfolds, owners and buyers continue to benefit from some of the lowest mortgage rates of all time," says Freddie Mac's chief economist Sam Khater.
The average 30-year rate has remained below 3% for five weeks and has fallen back into the neighborhood of January's record-low of 2.65%.
15-year mortgage rates
Here’s where things get interesting for homeowners.
The average rate on a 15-year fixed-rate mortgage fell from 2.12% to 2.10% last week — a new all-time low in the Freddie Mac survey, which goes back 50 years.
A year ago, the average rate on a 15-year was 2.51%. It averaged a whopping 3.39% in 2019.
The 15-year can be a smart choice for refinancers, as the shorter term allows homeowners to pay less in interest and own their homes in the clear much sooner. If you can afford the higher monthly payments, a 15-year refinance may be worth a look.
5/1 adjustable mortgage rates
The average rate on 5/1 adjustable rate mortgages (ARMs) declined last week, slipping to 2.45% from 2.49%. A year ago, 5/1 ARMs averaged 2.94%.
ARMs have proven to be fairly volatile this year. They leaped as high as 3.12% in January, and spent much of the year in the 2.8% range. But they have trended downward since May, and are now scraping rock bottom.
ARMs typically start out with lower rates than fixed-rate mortgages. After an initial fixed-rate period, the rate adjusts on a regular basis for the remainder of the loan. A 5/1 ARM has a fixed-rate phase that lasts five years, and the rate will move — either up or down — every (one) year after that.
The fee and the Fed
Mortgage rates have dipped in recent weeks after regulators announced they would stop charging lenders a 0.5% fee on refinance loans. The surcharge was instituted late last year to offset risks and losses related to the pandemic.
Many lenders had been rolling the fee into their mortgage rates, so with the extra cost now history — it formally came to an end as of Sunday, Aug. 1 — rates are lower now.
Another reason for today's cheap mortgage rates is the Federal Reserve's determination to keep its coronavirus-fighting policies in place.
Following a meeting last week, central bank policymakers indicated they remained committed to holding interest rates down until the Fed's goals of full employment and sustained inflation of around 2% are met. The Fed also said it would keep buying Treasury bonds and mortgage-backed securities to support the economy.
But in coming months, the Fed is likely to say how it plans to unwind its COVID emergency measures, and mortgage rates will feel some pressure to rise, says Danielle Hale, chief economist at Realtor.com.
"Thus, we expect mortgage rates to fluctuate near historic lows through the summer before beginning to climb this fall," she said. “Those who haven’t yet taken advantage of low rates to buy a home or refinance still have the opportunity to do so this summer."
How to land a good rate
Despite record-low mortgage rates, millions of homeowners have not refinanced their homes in the last year-plus. Online real estate marketplace Zillow recently found 78% of eligible U.S. homeowners did not refinance between April 2020 and April 2021.
Of those who did, almost half saved $300 or more per month on their mortgages.
If you’re considering a refi, give some thought to your history as a borrower. Have you checked your credit score lately? The best mortgage rates tend to go to borrowers with the highest credit scores, so find out where yours stands and see if you need to improve it by a few points.
If your credit history includes a crushing amount of high-interest debt, mortgage lenders may have doubts about your ability to handle a home loan, too. So consider taking out a single, lower-interest debt consolidation loan to cut your interest costs and clear that debt off your books sooner.
Once the time comes to start weighing your mortgage options, be sure to compare offers from at least five lenders. Multiple studies have determined that five is the magic number for scoring the best mortgage rate for your budget.
And if a refi isn’t something you want to move forward with, you might find other ways to reduce the cost of homeownership. The next time you need to buy or renew your homeowners insurance, a little comparison shopping could save you hundreds of dollars.
The same strategy can help you pay less for car insurance, too.