As mortgage rates hit 3% again, expert predicts we’ll see 4% rates this year

Predictions that mortgage rates wouldn’t stay below 3% have come true, according to one survey, as the economy recovers from being clobbered by the coronavirus.

And, the latest increase could be just the beginning of a longer-term run-up in rates after weeks of near-record low averages. By year-end, mortgage rates could reach upwards of 4%, according to at least one insider.

If you've been wanting to buy a home, or refinance an existing home loan to slash your monthly mortgage payment, you may not have much time left to grab a dirt-cheap rate, experts are saying.

30-year mortgagesAndrey_Popov / Shutterstock

The average interest rate on a 30-year fixed-rate mortgage — the nation’s most popular home loan — returned to an even 3% last week, mortgage giant Freddie Mac reported on Thursday.

The typical 30-year rate jumped from a week earlier, when it averaged 2.94%. A year ago at this time, the average was 3.24%.

Mortgage rates had been hovering below 3% for weeks. They climbed last week due to signs of rising inflation, and to the release of notes from the last Federal Reserve meeting, says Realtor.com senior economist George Ratiu. The notes suggested the Fed may soon start unwinding policies that have helped keep rates down.

"We are moving into a seesawing period for mortgage rates, as investors react to monetary shifts in response to market performance," Ratiu says, in a statement.

15-year mortgages

The average rate on a 15-year fixed-rate mortgage edged up to 2.29% last week, Freddie Mac’s long-running survey shows.

During the previous week, the rate averaged 2.26%. A year ago at this time, it was 2.7%.

The shorter-term loans are a popular option among refinancing homeowners who can afford higher monthly payments or want to cut their lifetime interest costs.

5/1 adjustable-rate mortgages

The average rate on 5/1 adjustable-rate mortgages, or ARMs, was flat last week at 2.59%, Freddie Mac says.

One year ago, those "ARMs" were going for an average 3.17%.

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Adjustable-rate loans have rates that are fixed for the first five years and then can "adjust" — up or down — each (one) year. They move in sync with the prime rate or some other benchmark.

Beware of 4% mortgage rates this yearAndrii Yalanskyi / Shutterstock

The economy's comeback — due in large part to rapidly rising vaccination numbers — likely means further increases in mortgage rates, experts say.

"Any good news for the economy is not good for rates," Jennifer Hughes Hernandez, a senior loan officer with Texas-based Legacy Mutual Mortgage, tells MoneyWise. "I think they could very easily go above 4% by the end of the year — or even maybe higher."

Would-be borrowers shouldn't miss out on the opportunities presented by the current rates, Ratiu warns.

“For today’s real estate markets, low financing costs remain a strong motivator, incentivizing buyers and homeowners looking to refinance," he says.

Mortgage technology and data provider Black Knight recently estimated that some 13 million U.S. mortgage holders still had the ability to save an average $283 a month by refinancing.

Good refi candidates have built up at least 20% equity in their homes, could shave at least three-quarters of a percentage point (0.75) off their existing rate, and have credit scores of 720 or better, Black Knight says. If you haven't checked your score in a while, it’s easy to look at your credit score online for free.

How to find the lowest rates out therefizkes / Shutterstock

Homebuyers eager to take advantage of low mortgage rates have been discouraged by bidding wars and a dwindling supply of properties for sale. But Ratiu is hopeful there will be more houses on the market soon.

"Homeowners planning to list their homes this year are in a strong position to do so, and they could benefit from listing soon," he says.

If you’re ready to start shopping for a house, or if you’ve been looking for a while, be sure to shop for a lender, too.

Studies from Freddie Mac and others have shown that comparing mortgage offers from five lenders or more can result in thousands of dollars in savings over the life of your loan.

Those comparison skills will come in handy again when you buy or renew your homeowners insurance. Review rates from multiple insurers to find the lowest price on the coverage you need.