Mortgage rates take the biggest leap in 8 weeks as clock ticks on refinancing

·4 min read
Mortgage rates take the biggest leap in 8 weeks as clock ticks on refinancing
Mortgage rates take the biggest leap in 8 weeks as clock ticks on refinancing

Despite yet another wave of COVID-19 putting stress on the economy, a long-running survey shows mortgage rates have posted their biggest rise in eight weeks.

Analysts say rates jumped because of an encouraging report on hiring in the U.S. If one positive report in the midst of a major COVID flare-up is enough to push rates higher, further signs of economic stability could easily do the same.

Experts warn that once the economy is back on track, the low-rate genie could go back in the bottle — taking along today’s unprecedented opportunity to save big with a mortgage refinance.

30-year mortgage rates

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The average rate on a 30-year fixed mortgage rose from 2.77% to 2.87% last week, mortgage giant Freddie Mac reported on Thursday.

At this time last year, during the first pause in America's COVID nightmare, 30-year fixed mortgages were at an average 2.96%.

Rates are now the highest in a month, and the week-over-week jump is the largest since June 24, when the average rose from 2.93% to 3.02%.

"Despite the rise, rates remain very low," notes Sam Khater, Freddie Mac's chief economist.

When mortgage rates were at roughly the same levels one month ago, the mortgage data and technology company Black Knight told MoneyWise 13.9 million homeowners could save an average $293 a month by refinancing.

15-year mortgage rates

The average rate on 15-year fixed mortgages inched upward last week, to 2.15% from the previous week's 2.10%, which was an all-time low.

Fifteen-year mortgages are a popular pick for refinance loans. The shorter term means homeowners pay much less in interest, which allows them to pay off their mortgages more quickly and less expensively.

A year ago, the 15-year fixed was averaging a rate of 2.46%.

5/1 adjustable mortgage rates

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The cost of 5/1 adjustable rate mortgages, or ARMs, also has gone up.

A 5/1 ARM had an average introductory interest rate of 2.44% last week, up from 2.40% the week before. At this time last year, 5/1 ARMs were considerably more expensive, carrying an average rate of 2.90%.

Adjustable rate mortgages have two phases. For the first, you pay a fixed rate of interest that's typically lower than what you’d be required to pay on a 30-year fixed-rate loan. Once that period’s over, your ARM rate adjusts, either up or down, at regular intervals.

A 5/1 ARM would have you paying the same mortgage rate for the first five years. After that, your rate will be adjusted every (one) year.

Experts think mortgage rates will keep climbing

The recent uptick in rates is being attributed to the government's positive jobs report released earlier this month. It showed that a better-than-expected 943,000 new jobs were created in July, and that the unemployment rate shrank last month from 5.9% to 5.4%.

Freddie Mac's Khater characterizes economic growth in the U.S. as "strong" and predicts it will continue into 2022. If it does, each piece of good news could nudge mortgage rates higher.

Realtor.com senior economist George Ratiu expects mortgage rates to "bounce around below the 3% mark" until the Federal Reserve starts tapering one of its COVID-fighting measures that have helped keep rates low. Namely, the Fed has been buying billions in mortgage-backed securities every month.

"My expectation is that a monetary taper will drive mortgage rates upward, likely toward the end of the year," Ratiu says.

How to score a low mortgage rate while you can

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At that time, the low-rate bonanza for mortgage borrowers may come to an end, meaning the clock is ticking for homeowners considering a cost-saving refi. If you decide it's time to refinance, take these steps to obtain the best offer from a lender.

The lowest rates typically go to borrowers with the strongest credit, so review your credit score and see how it stacks up. Checking your credit score is quick and easy — and can be free — so take a look and see if you need to improve your credit standing before reaching out to lenders.

Mortgage lenders may shy away if you’re already carrying multiple high-interest debts, including on credit cards. Consider rolling those balances into a lower-interest debt consolidation loan. You’ll cut your interest costs and eliminate your debt faster.

Once it's time to shop for a mortgage, gather offers from multiple lenders to find the best rate for your area and for a person with your credit profile. Studies from Freddie Mac and others have found that comparing at least five offers is key to securing the most favorable rate on a mortgage.

A little comparison shopping could help you uncover a better deal on your homeowners insurance, too.

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