New drop in mortgage rates pushes some refinances deep below 3%, amplifying the savings

Thanksgiving isn’t for another couple of weeks, but U.S. homeowners have a reason to be grateful early: deeply cheap refinance rates.

The average for a 30-year fixed-rate mortgage has fallen below 3% for the first time in a month, a closely watched survey shows. And, rates on other loan types are even lower, giving homeowners ample opportunities to lock in an enviable rate on a refinance.

But ultra-low refi rates aren’t likely to last long, especially in light of higher inflation and a strengthening economy.

30-year mortgage rates

Rates on America's most popular mortgage — the 30-year fixed-rate home loan — dipped for a second straight week last week and came to rest at an average 2.98%, down from 3.09% the previous week, mortgage giant Freddie Mac reported on Wednesday. The last time rates were under 3% was the week of Oct. 7.

Again, 2.98% is an average. Borrowers who shop around can easily find 30-year rates much lower than 2.98%.

One year ago, the 30-year fixed-rate mortgage was averaging 2.84%.

Lower rates are nudging homeowners to get off the refinance fence. The Mortgage Bankers Association said last week that overall applications for mortgages rose 5.5% during the week ending Nov. 5, led by a 7% jump in demand for refinances.

It was the first increase in refi applications since the week ending Sept. 22.

15-year mortgage rates

Rates on 15-year fixed-rate mortgages, which are popular among refinancing homeowners, averaged 2.27% last week, way down 2.35% a week earlier, Freddie Mac’s report shows.

The current average isn't too far from the recent all-time low of 2.10%, and a good comparison shopper can now turn up 15-year refinance rates at 2% or even lower.

Last year at this time, the typical 15-year mortgage rate was 2.34%.

The shorter-term home loans come with much higher monthly payments than 30-year mortgages. But borrowers can save thousands of dollars in interest by paying off their loans faster.

5/1 adjustable mortgage rates

The five-year adjustable-rate mortgage, or ARM, averaged 2.53% last week. That was down just barely from the previous week's 2.54%.

At this time last year, 5/1 ARMs were considerably more expensive, averaging 3.11%.

With adjustable-rate mortgages, borrowers pay a fixed rate for an initial term, followed by a rate that can change at regular intervals. A 5/1 ARM has a rate that's fixed for five years and then "adjusts" every (one) year.

Though the 30-year fixed mortgage is usually the go-to for consumers, homeowners who plan to stay in their homes for just a short time and can afford higher monthly payments might be able to save more with an ARM.

Low rates aren't likely to last

Housing experts have been anticipating higher mortgage rates as COVID cases ease, the economy improves and inflation surges.

Plus, the Federal Reserve is undoing its pandemic-era policies that have been keeping borrowing costs down. That may push rates well above the 3% mark, and more quickly.

"Despite recent moves lower, mortgage rates will begin to climb as the Fed reduces its purchase of mortgage-backed securities by $5 billion per month in November and December," says Danielle Hale, chief economist with Realtor.com.

Rate shoppers shouldn’t get complacent, warns Tim Lucas, an editor at The Mortgage Reports.

Just two days after Freddie Mac released its report, some other surveys were showing average 30-year fixed mortgage rates back over the 3% line.

“And they could rise higher still depending on key economic reports that will be released next week,” Lucas writes.

How to land the lowest mortgage rate possible

Despite recent fluctuations in rates, mortgage financing is still cheap. And the highest rate predictions for the rest of this year reach only as high as 3.3% — still well below pre-pandemic levels.

If you’ve been mulling over a refi, consider this: A recent study found that nearly half of the homeowners who refinanced between April 2020 and April 2021 reduced their monthly mortgage payments by at least $300.

Once you decide to take out a new mortgage, check loan offers from multiple lenders to find the lowest rate for your area and for a person with your credit profile. Freddie Mac research found borrowers who compare five rate quotes save an average $3,000 more than those who settle on the first offer they see.

Mortgage lenders may give you the side-eye if you’re already carrying multiple high-interest debts. So consider rolling those balances into a lower-interest debt consolidation loan, to cut your interest costs make the debt more manageable.

And if you're looking for other ways to reduce the cost of homeownership, shop around for homeowners insurance when your policy comes up for renewal. If you review quotes from several insurers, you may find a much lower price for your coverage.

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