Mortgage Rates Keep Climbing | May 21, 2021

Mortgage rates moved higher for the second consecutive day Friday. The average rate for a 30-year fixed-rate mortgage rose to 3.382%, up 0.019 percentage points from Thursday. Rates were also higher for most other loan categories. Both the purchase and refinance rates for a 5/1 adjustable rate loan were down, as was the rate on a 10/1 ARM refinance loan.

Even with today's increase, interest rates are still very low from a historical perspective. Well-qualified borrowers looking to buy a house or refinance their home loan, can still find favorable rates or potentially lower their monthly payments.

The latest rate on a 30-year fixed-rate mortgage is 3.382%.
The latest rate on a 15-year fixed-rate mortgage is 2.485%.
The latest rate on a 5/1 jumbo ARM is 3.757%.
The latest rate on a 7/1 conforming ARM is 4.365%.
The latest rate on a 10/1 conforming ARM is 4.122%.

Current 30-year fixed mortgage rates

The 30-year rate is 3.382%.
That's a one-day increase of 0.019 percentage points.
That's a one-month increase of 0.059 percentage points.

A 30-year fixed-rate mortgage is the go-to loan for most home loan borrowers. Having a fixed-rate loan means that your interest rate and monthly payments will stay the same until you pay the debt off. You can also pay the loan off faster than 30-years (360 months) by making extra payments, refinancing the loan or selling the home.

Compared to a shorter-term loan, the interest rate on a 30-year loan will be higher but the monthly payments will be lower thanks to the longer payback time. However, since you're paying a higher rate for a longer time, you'll pay more in total interest.

Current 15-year fixed mortgage rates

The 15-year rate is 2.485%.
That's a one-day increase of 0.015 percentage points.
That's a one-month increase of 0.063 percentage points.

A 15-year fixed-rate loan could be a better option if you can afford higher monthly payments. Since the loan is fixed, the interest rate and monthly payments won't change for as long as you keep the loan. You can complete the loan faster than 15-years if you pay extra, refinance or sell your home.

The interest rate on a 15-year loan will be lower than the rate for a longer-term loan. The payments are higher because the payback time is 180 months — half the time of a 30-year mortgage. By paying a lower rate for less time, you'll also pay less interest.

Current 5/1 jumbo adjustable-rate mortgage rates

The 5/1 ARM rate is 3.757%.
That's a one-day decrease of 0.166 percentage points.
That's a one-month increase of 0.011 percentage points.

The interest rate and monthly payments on an adjustable-rate loan will be fixed at first, but then become variable after a predetermined number of years.

The interest rate on a 5/1 adjustable-rate loan, for example, will be fixed for the first five years then reset every year afterward. For some borrowers, the 5/1 ARM will have lowest initial interest rates on the market, which can be attractive if you don't plan on keeping the loan longer than five years. However, your rate can increase after the fixed-rate period.

Other common adjustable-rate mortgages include a 7/1 and a 10/1.

Current VA, FHA and jumbo loan rates

The average rates for FHA, VA and jumbo loans are:

The rate on a 30-year FHA mortgage is 3.175%.
The rate on a 30-year VA mortgage is 3.176%.
The rate on a 30-year jumbo mortgage is 3.748%.

Current mortgage refinance rates

The average rates for 30-year loans, 15- year loans and 5/1 jumbo ARMs are:

The refinance rate on a 30-year fixed-rate refinance is 3.779%.
The refinance rate on a 15-year fixed-rate refinance is 2.674%.
The refinance rate on a 5/1 jumbo ARM is 4.047%.
The refinance rate on a 7/1 conforming ARM is 4.676%.
The refinance rate on a 10/1 conforming ARM is 4.552%.

Where are mortgage rates heading this year?

Mortgage rates sunk through 2020. Millions of homeowners responded to low mortgage rates by refinancing existing loans and taking out new ones. Many people bought homes they may not have been able to afford if rates were higher.

In January 2021, rates briefly dropped to the lowest levels on record, but trended higher through the month and into February.

Looking ahead, experts believe interest rates will rise more in 2021, but modestly. Factors that could influence rates include how quickly the COVID-19 vaccines are distributed and when lawmakers can agree on another economic relief package. More vaccinations and stimulus from the government could lead to improved economic conditions, which would boost rates.

While mortgage rates are likely to rise this year, experts say the increase won’t happen overnight and it won’t be a dramatic jump. Rates should stay near historically low levels through the first half of the year, rising slightly later in the year. Even with rising rates, it will still be a favorable time to finance a new home or refinance.

Factors that influence mortgage rates include:

The Federal Reserve. The Fed took swift action when the pandemic hit the United States in March of 2020. The Fed announced plans to keep money moving through the economy by dropping the short-term Federal Fund interest rate to between 0% and 0.25%, which is as low as they go. The central bank also pledged to buy mortgage-backed securities and treasuries, propping up the housing finance market. The Fed has reaffirmed its commitment to these policies for the foreseeable future multiple times, most recently at a late January policy meeting.
The 10-year Treasury note. Mortgage rates move in lockstep with the yields on the government’s 10-year Treasury note. Yields dropped below 1% for the first time in March 2020 and have been slowly rising since then. Currently, yields have been hovering above 1% since the beginning of the year, pushing interest rates slightly higher. On average, there is typically a 1.8 point “spread” between Treasury yields and benchmark mortgage rates.
The broader economy. Unemployment rates and change in gross domestic product are important indicators of the overall health of the economy. When employment and GDP growth are low, it means the economy is weak, which can push interest rates down. Thanks to the pandemic, unemployment levels reached all-time highs early last year and have not yet recovered. GDP also took a hit, and while it has bounced back somewhat, there is still a lot of room for improvement.

Tips for getting the lowest mortgage rate possible

There is no universal mortgage rate that all borrowers receive. Qualifying for the lowest mortgage rates takes a little bit of work and will depend on both personal financial factors and market conditions.

Check your credit score and credit report. Errors or other red flags that may be dragging your credit score down. Borrowers with the highest credit scores are the ones who will get the best rates, so checking your credit report before you start the house-hunting process is key. Taking steps to fix errors will help you raise your score. If you have high credit card balances, paying them down can also provide a quick boost.

Save up money for a sizeable down payment. This will lower your loan-to-value ratio, which means how much of the home’s price the lender has to finance. A lower LTV usually translates to a lower mortgage rate. Lenders also like to see money that has been saved in an account for at least 60 days. It tells the lender you have the money to finance the home purchase.

Shop around for the best rate. Don’t settle for the first interest rate that a lender offers you. Check with at least three different lenders to see who offers the lowest interest. Also consider different types of lenders, such as credit unions and online lenders in addition to traditional banks.

Also take time to find out about different loan types. While the 30-year fixed-rate mortgage is the most common type of mortgage, consider a shorter-term loan like a 15-year loan or an adjustable-rate mortgage. These types of loans often come with a lower rate than a conventional 30-year mortgage. Compare the costs of all to see which one best fits your needs and financial situation. Government loans — such as those backed by the Federal Housing Authority, the Department of Veterans Affairs and the Department of Agriculture — can be more affordable options for those who qualify.

Finally, lock in your rate. Locking your rate once you’ve found the right rate, loan product and lender will help guarantee your mortgage rate won’t increase before you close on the loan.

Our mortgage rate methodology

Money’s daily mortgage rates show the average rate offered by over 8,000 lenders across the United States the most recent business day rates are available for. Today, we are showing rates for Thursday, May 20, 2021. Our rates reflect what a typical borrower with a 700 credit score might expect to pay for a home loan right now. These rates were offered to people putting 20% down and include discount points.

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