As mortgage rates keep surging, experts say borrowers shouldn't delay

·4-min read
As mortgage rates keep surging, experts say borrowers shouldn't delay
As mortgage rates keep surging, experts say borrowers shouldn't delay

New surveys show mortgage rates have spiked to their highest levels since at least last summer, if not more than a year. And, the journey skyward seems far from over.

"The rebound in business activity is ensuring that mortgage rates will continue higher this year. For buyers and sellers, the shift will mean higher financing costs," says Danielle Hale, chief economist with Realtor.com.

Data on mortgage applications shows the higher rates have largely sent borrowers into hibernation — but experts say that's the wrong move if you're looking to buy a home or refinance an existing home loan, to cut your monthly mortgage payment.

Because today's rates could look extremely cheap before long.

30-year mortgages

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The average rate for a 30-year fixed mortgage crept up last week to 3.05%, according to the 50-year-old survey from Freddie Mac.

Rates rose from an average of 3.02% previous week and reached their highest point since July 2020, the government-sponsored mortgage giant reported on Thursday.

Other surveys are reporting even higher averages. The Mortgage Bankers Association, or MBA, last week said it found the typical 30-year fixed mortgage was now going for 3.26%, and Mortgage News Daily on Friday reported that rates on 30-year loans had jumped to an average 3.32% — the steepest in a year.

Mortgage rates are rising sharply as investors grow more and more optimistic about the economy recovery, explains Matthew Graham, chief operating officer of Mortgage News Daily.

"The acceleration in 2021 is all about increased vaccine distribution, sharp declines in case counts, and the passage of more COVID-relief stimulus," Graham writes.

15-year mortgages

Rates were slightly higher last week on other popular types of home loans, according to Freddie Mac.

The average for a 15-year fixed-rate mortgage increased from 2.34% to 2.38%. These shorter-term home loans were averaging 2.77% at the same time last year.

Fifteen-year loans are a popular choice for refinancing, but demand for refi applications has cooled.

In the most recent week, demand for refinance loans tumbled 5% and was down for the fourth time in five weeks.

5/1 adjustable-rate mortgages

Starter rates on 5/1 adjustable-rate mortgages, or ARMs, saw a similar hike last week, climbing from 2.73% to 2.77% in the Freddie Mac survey.

A 5/1 ARM includes a rate that is fixed for the first five years of the mortgage. It then can adjust — up or down — every year after that.

A year ago, ARMs were going for an average 3.01%.

Why are mortgage rates rising — and where will they go next?

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Mortgage rates are tied closely to activity in the bond market and follow the interest, on yield, on the 10-year Treasury note. That yield has been sliding as investors have shoveled money out of bonds and into stocks, which carry more risk.

When Congress passed the $1.9 trillion COVID-19 stimulus package last week, it signaled to investors that increased consumer spending and economic growth may be just around the corner. That positive news triggered an even greater pullback from the bond market, which pushed mortgage rates higher.

As businesses rebound, borrowers can expect to see rates continue to rise, possibly at a more rapid pace.

“For buyers and sellers, the shift will mean higher financing costs,” says Realtor.com senior economist George Ratui. “For homeowners seeking to refinance, higher rates are closing the door of opportunity."

Is it too late to borrow? Nope

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Given the risk that mortgage rates will keep going up, would-be borrowers should not be sidelining themselves right now, experts say. Peter Warden, editor of the website The Mortgage Reports, is recommending that his readers lock a rate now, whether they've got a loan that's closing in seven days or 60 days.

If you're a homeowner, you might still have an opportunity to refinance and save hundreds of dollars a month.

The mortgage technology and data provider Black Knight reported in early March that 12.9 million mortgage holders were still good refinance candidates. Namely, they could chop down their mortgage rate by at least three-quarters of a point (0.75), had a solid credit score and a healthy amount of home equity.

If you haven't seen your credit score in a while, it's easy these days to take a peek at your credit score for free.

To get the best rate on a refinance mortgage, you need to shop around. Compare loan offers from at least five lenders, because multiple studies have determined five is the magic number for bagging a low rate that can save you thousands over time.

Even if refinancing can’t save you money, you can probably bring down the overall cost of homeownership in other ways. When it’s time to buy or renew your homeowners insurance, a little more comparison shopping can go a long way: Check rates from multiple insurers to find the best deal on the coverage you need.