Mortgage rates just leaped higher. Is it the end of super-cheap loans?

Ethan Rotberg
·3 min read
Mortgage rates just leaped higher. Is it the end of super-cheap loans?
Mortgage rates just leaped higher. Is it the end of super-cheap loans?

Mortgages rates have shot higher, according to a popular survey, with a mix of politics and positive vaccine news pushing rates north of their all-time lows.

Analysts say financial markets are expecting brighter days ahead, buoyed by President-elect Joe Biden’s plan for further COVID relief. The optimism is pushing interest rates higher.

Though last week’s surge is the biggest since last March for mortgage rates, they’re still at low levels that were unthinkable before the pandemic struck.

Cheap rates have stretched last year’s refinance frenzy into the new year, as homeowners continue to take out new loans to chop their monthly mortgage payments.

Rates catapult off their record lows

STACKED US QUARTER COINS ON WOODEN TABLE WITH WHITE ILLUSTRATION SHOWS INCREASING OF INTEREST RATES / FINANCIAL CONCEPT
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Mortgage rates are averaging 2.79% for a 30-year fixed-rate loan, up from the previous week’s all-time low of 2.65%, mortgage giant Freddie Mac said on Thursday.

But 30-year home loans are still miles below this time last year, when they averaged 3.65%.

Last week’s increase appears to be the biggest since the benchmark mortgage rate skyrocketed from 3.36% to 3.65% in mid-March of last year.

Rates are climbing now because the incoming Biden administration seems likely to pass another massive package of coronavirus aid. The potential for more government debt is sending the interest on Treasury bonds upward, with mortgage rates following.

“COVID-relief stimulus may do great things for people in the short term, and for the economy in the longer term, but it does bad things for interest rates (assuming you like low rates, that is),” says Matthew Graham, chief operating officer of Mortgage News Daily.

Where do rates go from here?

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“The path forward for mortgage rates will be dictated by our ability to contain and treat COVID-19, as well as improvement in the labor markets,” says Matthew Speakman, an economist with Zillow.

“A prolonged upward spike is far from inevitable,” he adds.

Rates on other mortgages also increased last week, the Freddie Mac survey shows. The 15-year fixed-rate loan was averaging 2.23%, up from a record-low 2.16% one week earlier. Those mortgages, often used for refinance loans, remain far below last year, when the average was 3.09%.

Average rates on 5/1 adjustable-rate mortgages, or ARMs, decreased to 3.12% from the previous week’s 2.75%, still a distance from last year’s 3.44%.

“Borrowers are smart to take advantage of these low rates now and will certainly benefit as a result,” says Sam Khater, Freddie Mac’s chief economist.

How to join the run on refis

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Many homeowners have been doing all of that, as applications for refinance loans have been coming in at nearly double the pace of a year ago, reports the Mortgage Bankers Association.

But more than 19 million mortgage holders are still waiting to refi and could save an average $308 per month with a new loan, according to mortgage technology and data provider Black Knight. Good refinance candidates include those with solid credit scores and at least 20% equity in their homes.

Experts say buyers should gather and compare at least five rate quotes to find the best deal — because rates can vary sharply from one lender to the next.

If you wait too long and miss out on super-cheap mortgage rates, you can find home savings elsewhere. A little comparison shopping can help you get a lower price on your homeowners insurance that could save you as much as $1,000 a year.