Canada Markets closed

Mortgage rates rise slightly, but you still have a window to snag a COVID deal

·5 min read
Mortgage rates rise slightly, but you still have a window to snag a COVID deal
Mortgage rates rise slightly, but you still have a window to snag a COVID deal

It’s inevitable, homeowners: The pandemic-fueled low mortgage rate party will come to an end.

The economy's open, more than 2 million jobs were created in the last three months, and COVID-19 relief programs are being allowed to wind down and expire.

Amid signs the recovery is progressing, rates on some popular mortgages have moved higher, according to a long-running and closely followed survey.

They didn’t rise by much, and remain fairly close to their all-time lows. But it’s a sign that, even amid a brutal stretch of COVID-19 infections, the U.S. economy may be too healthy for today’s ultra-low mortgage rates to stay that way for long.

30-year fixed mortgage rates

House model and key in house door. Real estate agent offer house, property insurance and security, affordable housing concepts
sommart sombutwanitkul / Shutterstock

The average interest rate on a 30-year fixed mortgage rose last week to 2.88%, from 2.86% a week earlier, mortgage giant Freddie Mac reported on Thursday.

Rates are again the highest they've been since the beginning of July — right before COVID’s delta resurgence began. But they're not far from January's record low of 2.65%.

Sam Khater, Freddie Mac’s chief economist, says rates have edged higher as money pours into U.S. financial markets in the midst of economic slowdowns around the world.

"This has led to a rise in foreign investor purchases of U.S. Treasuries, causing mortgage rates to remain in place, despite the increasing dispersion of inflation across different consumer goods and services," Khater says.

Though the COVID situation has worsened in many parts of the U.S. in recent months, the economy has steadily improved. If that upward trajectory continues, the uncertainty that has helped keep mortgage rates low throughout the pandemic may become less of a factor.

According to a competing survey, rates are already spiking. The Mortgage News Daily average rate for a 30-year fixed-rate mortgage on Friday was 3.13%, up from 3.03% a week earlier.

15-year fixed mortgage rates

As for the average 15-year fixed mortgage rate, it increased last week from 2.12% to 2.15%, Freddie Mac says.

Despite the uptick, that's still considerably cheaper than at this time last year, when 15-year loans were averaging 2.40%. And, the typical rate is still pretty close to the recent all-time low of 2.10%.

The 15-year fixed is popular for refinances because the shorter term means you pay much less in total interest — and own your home sooner. Monthly payments, though, are higher than with a 30-year mortgage, so the loans are not a fit for every budget.

Keep in mind that Freddie’s rate figures are averages. Some lenders are currently offering even lower 15- and 30-year rates.

5-year adjustable mortgage rates

Fixed Rate and Adjustable Rate text on a book isolated on office desk.
bangoland / Shutterstock

The average rate on five-year adjustable-rate mortgages, or 5/1 ARMs, edged down from 2.51% to 2.43% last week. A year ago, the loans were averaging 2.90%.

ARMs start out with fixed interest rates for a certain number of years, then the rates increase or decrease at predetermined intervals.

A 5/1 ARM, for example, would begin with a fixed five-year interest period, and your interest rate will adjust every (one) year after that.

New reasons time may be running out on low rates

Retro alarm clock or vintage alarm clock in old hand. Time is running out concept shows clock that is dissolving away into little particles
Bystrov / Shutterstock

Forecasters were already warning about a big boost in mortgage rates before long, and now the Federal Reserve just provided even more reasons for that to happen.

The Fed on Wednesday released a new economic assessment, as well as a number of key projections. The takeaway for homeowners and homebuyers was that mortgage rates will be feeling pressure to rise.

Half the central bank’s policymakers project the Fed will begin increasing its federal funds rate — which directly affects banks’ prime rates and adjustable mortgage rates — in 2022. The Fed had previously targeted 2023 as the earliest it would raise its benchmark interest rate.

The Fed also indicated it may be ready to scale back its monthly purchases of $80 billion in Treasury bonds and $40 billion in mortgage-backed securities.

That buying has helped keep fixed mortgage rates historically low, so rates are likely to start rising as the Fed "tapers" its purchases.

"The days of sub-3% mortgage rates may be in the rear view mirror by the end of 2021," predicts George Ratiu, Realtor.com manager of economic research.

How to lock in a low rate now

Serious african american couple using calculator and laptop for calaulating finance. Diverse upset man and woman taxing, accounting with check credit analytic for mortgage payment.
fizkes / Shutterstock

Despite low pandemic-era mortgage rates, 78% of eligible homeowners did not refinance their mortgages in the year ending April 2021, according to a recent Zillow survey. Almost half those who did saved at least $300 a month. If you're putting off refinancing, you could be leaving a pile of money on the table.

But getting the lowest interest rate available may require some work.

You'll want to be seen as a low-risk borrower, which can be tough if you’re carrying credit card balances and other nagging debt. Taking out a debt consolidation loan could help reduce the amount of interest you pay, wipe out your debt faster and improve your cash flow.

Once you decide to refinance, you’ll want to check mortgage rates from at least five lenders. Shopping around is a proven way to find the best loan for your budget.

If refinancing your mortgage isn’t something you want to move forward with, there are other ways to reduce the cost of homeownership. When the time comes to renew your homeowners insurance, seek out quotes from multiple insurers, because you could find you're overpaying by hundreds of dollars a year.

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

Our goal is to create a safe and engaging place for users to connect over interests and passions. In order to improve our community experience, we are temporarily suspending article commenting