Mortgage rates dip deeper below 3% and open wider window to refinance savings

Down. Up. Down. Up. Aaand back down again.

U.S. mortgage rates have been bouncing around from week to week, but here's the important part: Despite all the gyrating, the average for America's standard mortgage has avoided jumping back above 3% for nearly two months.

A popular survey shows rates just fell a little deeper into the 2s, which helps not only homebuyers but also homeowners, who can refinance and save hundreds on their monthly payments.

30-year mortgages1599686sv / Shutterstock

The average interest rate on a 30-year fixed-rate mortgage — America’s most popular home loan — dropped to 2.96% last week, from 2.99% a week earlier, mortgage giant Freddie Mac reported on Thursday.

Rates are up from January’s all-time low of 2.65%, but they’re still among the lowest in history. A year ago, the 30-year fixed was averaging 3.21%.

Mortgage rates are likely to stay cheap for a while, says Danielle Hale, chief economist for Realtor.com. She says that while mortgage rates tend to rise and fall with the economy — and many indicators show a strengthening job market — employment is still a long way from its prepandemic peak.

“As long as this remains the case, mortgage rates are likely to hover near 3%,” Hale says.

15-year mortgages

The average rate on a 15-year fixed-rate mortgage slid last week to 2.23%, according to Freddie Mac's long-running survey. That’s down from 2.27% the previous week and 2.62% last year at this time.

These shorter-term loans are popular among refinancing homeowners who can afford higher monthly payments and want to cut their lifetime interest costs.

With inflation accelerating as the economy rebounds, borrowing money for a house today is a smart bet, says Michael Greiner, assistant professor of management at Oakland University in suburban Detroit.

“Few people pay cash for their home. As a result, the real cost of a home is the amount paid plus interest. If the interest rate is lower, then you are essentially buying your home for a lower price,” Greiner tells MoneyWise.

Story continues5/1 adjustable-rate mortgagesMonster Ztudio / Shutterstock

The typical rate on a 5/1 adjustable-rate mortgage fell to 2.55% last week, down from 2.64% the week before and 3.1% a year ago at this time.

ARMs usually start out with lower rates than their fixed-rate cousins, but after a period of time the rates can "adjust" up or down, in step with the prime rate or some other benchmark.

These loans are called 5/1 ARMs because they're fixed for the first five years and then adjust every (one) year after that.

14M could benefit from refinancingRoschetzky Photography / Shutterstock

With the average 30-year mortgage rate staying under 3%, millions of homeowners have the potential to save thousands of dollars and increase their monthly cash flow by refinancing, according to a recent report.

An estimated 14.1 U.S. mortgage holders now have the ability to save an average $287 a month by refinancing, according to mortgage technology and data provider Black Knight. Roughly 1.7 million could save over $500 monthly through a refi.

You're considered a good candidate for a refinance if you’ve built up at least 20% equity in your home and could shave at least three quarters of a percentage point (0.75) off your existing interest rate with a new 30-year mortgage, Black Knight says.

It also helps to have a credit score of 720 or better. If you haven’t checked yours in a while, it’s easy to get a look at your credit score for free.

How to track down the lowest mortgage rategoodluz / Shutterstock

Low mortgage rates also are benefiting homebuyers, who've been dealing with skyrocketing home prices.

“There’s still time to take advantage of low rates," Hale says. "However, with few, fast-selling choices and record-high asking prices, the number of buyers applying for mortgages has waned in recent weeks."

If you're determined to find the lowest mortgage rate possible, studies from Freddie Mac and others have shown that comparing at least five mortgage offers from different lenders can result in significant savings.

While you're flexing your comparison shopping muscles, also shop around for the best rate on homeowners insurance. You might easily be overpaying.

And note that when you apply for a mortgage, lenders will want to see a solid track record of on-time payments for all your debts. If you have multiple high-interest loans, consider rolling them into a single, lower-interest debt consolidation loan to pay off your balances more quickly and affordably.

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