Lower mortgage rates for the holidays give homeowners the refinance savings they wanted

Lower mortgage rates for the holidays give homeowners the refinance savings they wanted

Mortgage rates, which have held fairly steady for more than a month, have fallen back down, a popular survey shows.

A potentially short window of opportunity is open if you’re hoping to bag an enviable rate to refinance an existing mortgage.

Cheaper rates aren’t expected to be a lasting phenomenon — even though the fast-spreading omicron variant is rattling the economy and putting downward pressure on rates.

30-year fixed mortgage rates

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Last week, the interest rate on a 30-year fixed-rate mortgage was averaging 3.05%, down from 3.12% the previous week, mortgage giant Freddie Mac is reporting.

One year ago, 30-year fixed-rate loans averaged just 2.66%.

“The market volatility resulting from the COVID-19 omicron variant is causing mortgage rates to decrease,” says Sam Khater, Freddie Mac’s chief economist. “However, rates are expected to increase in 2022 which will impact homebuyer demand as well as refinance activity.”

As the Federal Reserve winds down its pandemic policies and anticipates raising interest rates three times next year, homeowners might not have much more time to nab a cheap refinance rate.

Borrowers are cluing in. This holiday season — typically a slower time of year for housing activity — has been unseasonably strong as borrowers hurry to grab low mortgage rates before their expected rise, says George Ratiu, manager of economic research with Realtor.com.

“The combination of rising inflation and the Federal Reserve’s accelerated tapering of mortgage-backed securities purchases is expected to push interest rates higher in 2022,” he says.

15-year fixed mortgage rates

The average interest rate on a 15-year fixed-rate mortgage dipped to 2.30%, down from 2.34% the previous week, Freddie Mac says.

This time last year, 15-year loans were averaging 2.19%.

Homeowners who refinance into 15-year mortgages will pay much less in interest costs over the life of their loan than they would with a 30-year mortgage. The shorter-term option, however, usually comes with higher monthly payments.

5-year adjustable mortgage rates

Rates on five-year adjustable-rate mortgages (ARMs) were averaging 2.37% last week, down from 2.45% the week earlier. A year ago at this time the five-year ARM averaged a stiffer 2.79%.

Adjustable-rate loans come with interest rates that can go up or down after a period of time, based on the performance of a particular benchmark like the prime rate.

If you’re planning to keep the loan for just a few years, a five-year ARM, for example, allows you to avoid paying higher interest if rates go up during that time. When rates are rising, borrowers often refinance their ARMs into more stable fixed-rate loans.

How high will rates rise?

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While your Christmas and New Year’s holidays may look a bit different this year thanks to omicron, deeply discounted mortgage rates are one reason to celebrate.

If you look around, you can easily find a 30-year refi mortgage under 3%, and 15-year loans with rates below 2%.

Come next year, though, borrowing costs are expected to start heading north. The National Association of Realtors is predicting mortgage rates will go as high as 3.6% by the end of next year, and the Mortgage Bankers Association looks for 30-year rates to hit 4% in 2022.

Monetary policy is largely driving the direction of rates. Last month’s uptick in inflation forced the Federal Reserve to accelerate its plan to reduce monthly purchases of mortgage-backed securities, a pandemic-era practice that has helped keep a lid on rates.

If the economy sputters next year, mortgage rates could fall, giving homeowners another chance to refi, says Corey Burr, senior vice president at TTR Sotheby’s International Realty in Washington, D.C.

But the most likely scenario, he says, is that inflation will moderate and mortgage rates will surge as much as 1 full percentage point from their current levels.

How to get the lowest mortgage rate possible

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Early 2021 offered record-low mortgage rates as the COVID-19 catastrophe continued to hammer the U.S. economy. And, borrowers who refinanced into 30-year loans during the first half of this year have saved over $2,800 in mortgage payments annually, Freddie Mac research shows.

Americans seeking to snag a low interest rate must first make sure their credit is up to snuff. If you’re not sure where yours stands, it’s easy now to check your credit score for free.

In order to find the best rate, studies have shown that comparing mortgage offers from at least five lenders can result in significant savings.

While you’re in comparison-shopping mode, look around for the best rate on homeowners insurance. You might find you’re paying too much for your coverage.

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