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By Leslie Cook
April 15, 2021
Money; Getty Images

The average rate for a 30-year fixed-rate mortgage was 3.04% with 0.7 discount points paid for the week ending April 15, according to Freddie Mac’s benchmark Primary Mortgage Survey.

The weekly rates have now dropped twice in a row and are 0.10 percentage points lower than just a week ago. The declines, however, follow two months of rate increases. As a result, Freddie Mac’s rates remain about the record low set in early January.

Still, mortgage rates are tantalizingly close to 3%. At this point last year, the average rate on a 30-year loan was 3.31%. Sub-3% rates seemed unlikely until last July when rates first hit that level and stayed there for the rest of the year.

However, experts say improving economic conditions may make this decline short-lived.

“The economy is improving on the demand side and the supply side, a variety of goods and materials remain scarce,” said Sam Khater, Freddie Mac’s chief economist in a statement on the latest numbers. “As a result of this imbalance, pricing pressures are building and causing inflation to rise. Despite the pause in mortgage rates recently, we expect them to increase modestly for the remainder of this year.”

The average rate for a 15-year fixed-rate mortgage decreased by 0.07 percentage points to 2.35% with 0.7 points paid. A year ago, the 15-year rate was 2.80%.

The rate on a 5-year adjustable-rate mortgage was also decreased, dropping 0.12 percentage points to 2.80% with 0.4 points paid. A year ago, the 5/1 ARM rate was 3.34%.

Mortgage Rate Trends

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Will mortgage rates go back below 3%?

After what seemed like a sprint to higher levels, interest rates have taken a step back. Today’s rates decreased for the second week in a row, despite signs of an improving economy. Inflation has increased, but not enough yet to put upward pressure on rates. Other positive economic news includes a nearly 10% increase in retail sales in March and the lowest level of initial unemployment claims made in over a year.

Despite today’s decline, most experts believe rates will trend higher as the year progresses and the economy continues to improve.

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“Markets seem to agree with the Federal Reserve’s expectation that the recent rise in inflation will be temporary, and that means investors aren’t demanding higher rates to compensate,” noted Danielle Hale, chief economist at listing site Realtor.com. “Additionally, the Fed continues to give forward guidance indicating that there will be plenty of monetary support in the near term. These factors plus the potential for a slower pace of vaccination resulting from a recommended pause in the use of 1 of the 3 COVID-19 vaccines authorized for emergency use in the U.S. have disrupted the steady climb in mortgage rates we’ve seen through most of 2021.”

Adding, “While this is welcome news for homebuyers already grappling with low supply and double-digit price gains, the break could be temporary with the upward trend resuming as the outlook for the economy brightens.”

On Thursday, the yield on the 10-year Treasury note opened at 1.641%, up from Wednesday’s close of 1.636%. Historically, there tends to be a spread of about 1.8 percentage points between the 10-year Treasury and average mortgage rates.

At the start of the coronavirus pandemic last year, yields dropped below the 1% mark for the first time ever. Treasury yields have moved higher since then, but held at low levels with the Federal Reserve repeatedly indicating that it expects to keep the short-term Federal Funds rate near zero through 2022 or longer.

Are people still taking out mortgages?

The total number of mortgage loan applications continue declining. Applications decreased by 3.7% for the week ending April 9, according to the Mortgage Bankers Association. The declines occurred for both purchase and refinance loans

The number of purchase loans decreased by 1% week-over-week, although they were still 51% higher year-over-year. However, there were fewer purchase loan applications than there were during the same week in 2019.

“The third straight week of declining purchase activity is a sign that rising home prices and tight supply are constraining homes sales — especially in the lower price tiers,” said Joel Kan, MBA’s associate vice president of economic and industry forecasting.

Are people still refinancing their mortgages?

The total number or refinance applications decreased by 5% from a week earlier, marking the ninth time in ten weeks that refi activity has fallen. Refi applications are also down 31% from a year ago. The share of loans made up by refinance loans fell to the lowest level in over a year and made up 59% of all mortgage loan applications.

“Many borrowers have either already refinanced at lower rates or are unwilling — or unable — to refinance at current rates.” said Kan.

Why your mortgage rate may be higher than current mortgage rates

Not all applicants will receive the very best rates when taking out a mortgage or refinancing. Credit scores, loan term, interest rate types (fixed or adjustable), down payment size, home location, and the loan size will affect mortgage rates offered to individual home shoppers.

Rates also vary between mortgage lenders. It’s estimated that about half of all buyers only look at one lender, primarily because they tend to trust referrals from their realtors. Yet this means that they may miss out on a lower rate elsewhere.

Last year, Freddie Mac reported that buyers who got offers from five different lenders averaged 0.17 percentage points lower on their interest rate than those who didn’t get multiple quotes. If you want to find the best rate and term for your loan, it makes sense to shop around first.

Today’s mortgage rates and your monthly payment

More than other factors, your annual percentage rate on your real estate purchase will affect your monthly payments — whether you’re refinancing or buying a new home.

On a $200,000 home loan with a fixed rate for 30 years:

  • At 3% interest rate = $843 in monthly payments (not including taxes, insurance, or HOA fees)
  • At 4% interest rate = $955 in monthly payments (not including taxes, insurance, or HOA fees)
  • At 6% interest rate = $1,199 in monthly payments (not including taxes, insurance, or HOA fees)
  • At 8% interest rate = $1,468 in monthly payments (not including taxes, insurance, or HOA fees)

Refinancing to a lower interest rate could save hundreds of dollars a month if you kept the same loan terms. Shortening the loan term could negate your monthly savings but save thousands over the life of the loan. You can experiment with a mortgage calculator to find out how much a lower rate could save you.

Other factors besides interest affect how much you’ll pay in mortgage payments:

  • Mortgage Insurance: Mortgage insurance costs up to 1% of your home loan’s value to your payment each year. Borrowers with conventional loans can avoid private mortgage insurance by making a 20% down payment or reaching 20% home equity. FHA borrowers pay a mortgage insurance premium throughout the life of the loan.
  • Closing Costs: Some buyers finance their new home’s closing costs into the loan, which adds to debt and increases monthly payments.
  • Loan Term: Choosing a 15-year mortgage instead of a 30-year mortgage will increase monthly mortgage payments but reduce the amount of interest paid throughout the life of the loan.
  • Fixed vs. ARM: An adjustable-rate mortgage’s monthly payment could change from year to year after the loan’s introductory period expires. A fixed-rate loan’s payments remain the same throughout the life of the loan.
  • Taxes, HOA Fees, Insurance: A monthly mortgage payment could also include homeowners insurance premiums, city or county property taxes, and Homeowners Association fees. Check with your real estate agent to find out how much they would add to your payments.

Will current mortgage rates save you money if you refinance?

You should consider refinancing your home loan if your current mortgage rate exceeds today’s mortgage rates by more than one percentage point. Mortgage refinance fees and closing costs would cut into your savings. You also have to consider whether your credit score would qualify you for today’s best refinance rates.

Many online lenders can give you free rate quotes to help you decide whether the money you’d save in interest charges justifies the cost of a new loan. Try to get a quote with a soft credit check which won’t hurt your credit score.

You could enhance interest savings by going with a shorter loan term such as a 15-year mortgage. Your payments may be higher, but you could save thousands in interest charges over time, and you’d pay off your house sooner.

Should you buy mortgage points?

Many lenders sell mortgage points (also known as discount points). Buying points means you’d pay more up front to lower your mortgage rate which could save you money long-term. A mortgage discount point normally costs 1% of your loan amount and could shave 0.25% off your interest rate.

With a $200,000 mortgage loan, a point would cost $2,000. Buying two points would cost $4,000 which would be due, in cash, when you close the loan. These two discount points would translate into a 0.5% reduction to your interest rate.

Discount points could pay off but only if you keep the home loan long enough. Selling the home or refinancing the mortgage within a couple of years would short circuit the discount point strategy. But if you stayed in the loan indefinitely, you’d reach a break-even point after which the discount points would save you more and more over time.

Often, spending cash on a down payment instead of discount points saves more unless you know for sure you’re keeping the loan for years. If a larger down payment could help you avoid paying PMI premiums, put the money toward your down payment instead of discount points.

How to find the best mortgage lender

The best mortgage lender for you will be the one the can give you the lowest rate and the terms you want. Your local bank or credit union probably writes mortgage loans with rates close to the current national average. A loan officer in your local branch could guide you through the process.

Online lenders have expanded their market share over the past decade. You could get pre-approved within minutes. Your loan amount combined with current mortgage rates could define your price range for home prices in your area. Many online lenders also assign a dedicated loan officer to offer continuity as you shop.

Shop around to compare rates and terms, and make sure your lender has the loan option you need. Not all lenders write USDA-backed mortgages or VA loans, for example. If you’re not sure about a lender’s veracity, ask for its NMLS number and search for online reviews.

What type of mortgage do you need?

First-time homebuyers can walk into a mortgage brokerage office or visit an online lender without knowing what kind of mortgage they need. But it’s always better to have an idea of what you’re shopping for, especially since you can’t control other factors such as home prices and current rates.

Mortgage loan types include:

  • Conventional Borrowing: Shoppers with higher credit scores and higher down payments can get a conventional mortgage with either a fixed or adjustable rate. Mortgage interest rates can be low for qualified buyers.
  • Subsidized Borrowing: The Federal Housing Administration and the U.S. Department of Agriculture help first-time homebuyers and shoppers in low-income areas buy homes by subsidizing their mortgage loans. FHA and USDA loans allow shoppers with lower credit profiles (a FICO score of 580) to still get affordable home financing. Subsidized loan restrictions include borrowing maximums and safe housing inspections. These loans are for single-family homes in most cases.
  • Veterans Affairs Loans: Veterans and active-duty service members can buy homes with no down payment and no PMI through the Department of Veterans Affairs’ lending program. Banks make loans that are guaranteed by the VA. VA loans require a funding fee that could range from 1.4% to 3.64% for first-time homebuyers.
  • Jumbo Loans: Homes in high-value housing markets like San Francisco and New York City may not fit within a conventional or FHA loan. Jumbo loans can help because they exceed the conforming loan limits of Fannie Mae and Freddie Mac.
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