Mortgage rates are the highest since April. Do you refinance now, or sit tight?

·4 min read
Mortgage rates are the highest since April. Do you refinance now, or sit tight?
Mortgage rates are the highest since April. Do you refinance now, or sit tight?

Mortgage rates keep climbing above the 3% line and have now reached their highest level in six months, according to a pair of closely followed surveys.

But we've seen this movie before, right? Rates soared early last spring but eventually tumbled back toward their all-time lows as the COVID delta variant went on a rampage and threatened the recovering economy.

If you're among the millions of U.S. homeowners who never refinanced over the last year of ultra-low rates, you might be wondering: Is time running out? Or should I wait for mortgage rates to retreat again?

Here's a look at what rates are doing — and what the experts would tell you to do.

30-year fixed mortgage rates

Up arrow and many houses. Growth in real estate prices market. Buying and selling house.
ADragan / Shutterstock

The interest on a 30-year fixed-rate mortgage rose last week from an average 3.05% to 3.09% —the highest since April, mortgage giant Freddie Mac reported on Thursday. One year ago, the popular loans were averaging just 2.80%.

Meanwhile, Mortgage News Daily's more frequent survey of lenders finds 30-year mortgage rates soared on Friday to 3.27%, on average, from 3.16% a week earlier. Rates have slipped this week, to an average 3.25% on Tuesday, MND reports.

Mortgage rates are continuing to rise "due to the trajectory of both the economy and the pandemic," says Sam Khater, Freddie Mac’s chief economist.

New COVID-19 infections are dropping, but inflation is high and could get worse — putting the Federal Reserve on a path to undo its COVID-fighting policies that have helped hold mortgage rates down.

15-year fixed mortgage rates

The average 15-year fixed mortgage rate also is climbing. It went up last week to 2.33% from 2.30%, Freddie Mac says.

With that uptick, the typical rate is now exactly where it was last year at this time.

Mortgage News Daily reports 15-year rates are at a loftier 2.62%, on average.

The shorter-term mortgages are popular among refinancing homeowners. While going from a 30-year to 15-year loan may mean higher monthly payments, the lifetime interest costs will be far lower.

5-year adjustable mortgage rates

Rates on five-year adjustable-rate mortgages (ARMs) inched down last week in the Freddie Mac survey, from 2.55% to 2.54%, on average. A year ago, the loans were averaging a much steeper 2.87%.

As in the cases of the other mortgage types, Mortgage News Daily's data shows a much higher typical rate: 3.13% for what's often called a 5/1 ARM.

Adjustable-rate mortgages begin with fixed interest rates for a period of years, then can rise or fall at regular intervals.

A 5/1 ARM starts with a fixed five-year interest period and then adjusts every (one) year after that.

Will rates go down again? Not likely, experts say

Facade on the Federal Reserve Building in Washington DC
Paul Brady Photography / Shutterstock

"The one-two punch of rising inflation and the Fed tapering asset purchases will continue to drive mortgage rates higher, likely reaching 3.4% by December," says George Ratiu, manager of economic research for Realtor.com.

The Fed has been buying up tens of billions of dollars' worth of Treasury bonds and mortgage-backed securities each month, but policymakers are expected to announce in early November that they're pulling back on that strategy.

Basically, that means if you're still on the fence about refinancing, it's time to get off.

"Rates are higher than they were a few weeks ago. And if you’re ready to lock, now is a good time to do so," writes Tim Lucas, editor of The Mortgage Reports. "Rates are likely to keep going up from here."

Lucas points out that mortgage rates are still cheap — lower than they were before the pandemic. In January of last year, 30-year mortgages were averaging a lofty 3.72%.

How to lock in a low refinance rate now

Couple at home looking at future home blueprint
goodluz / Shutterstock

A recent study found almost half the homeowners who refinanced between April 2020 and April 2021 were able to cut their monthly mortgage payments by $300 or more.

If you decide you'd benefit from a refi, be sure to gather quotes from multiple lenders. Studies from Freddie Mac and others have found that comparing five loan offers seems to be the magic number for getting the best deal on a mortgage.

The lowest rates generally go to borrowers with the strongest credit histories. So, start by reviewing your credit score, which you can easily do for free.

If your score needs work because of credit card balances and other high-interest debt that accumulated during the pandemic, you may want to consider a debt consolidation loan — to help reduce the amount of interest you pay and wipe out your debt faster.

If you’re not able to refinance, there are other ways to cut the cost of homeownership. When your home insurance comes up for renewal, take time to check rates from several insurers. You could find a cheaper price that will save you hundreds of dollars a year.

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

Our goal is to create a safe and engaging place for users to connect over interests and passions. In order to improve our community experience, we are temporarily suspending article commenting