Mortgage rates have taken a turn for the better, falling for the first time in seven weeks and giving would-be borrowers renewed hope that securing an ultra-low rate is still possible.
The decline, seen in a closely watched survey, is likely to boost homebuying — and encourage more homeowners to refinance existing mortgages at lower rates and cut their monthly payments.
30-year mortgages
The average rate on the popular 30-year fixed-rate mortgage dropped to 3.13% last week, from 3.18% a week earlier, mortgage giant Freddie Mac reported on Thursday.
The downward move is the result of a modest decline in U.S. Treasury yields, the interest rates the government pays to borrow money. The yield on the Treasury's 10-year note has a major influence on what Americans pay for home loans.
The lower rates, combined with a strong rebound in the job market, should bolster demand for homes and may prompt a new refinance wave, says Freddie Mac chief economist Sam Khater, in a news release.
“The drop in rates creates yet another opportunity for those who have not refinanced to take a look at the possibility,” he says.
Rates have almost never been this low. Last year, the average 30-year fixed mortgage rate was 3.33%, and two years ago it was above 4%.
15-year mortgages
The average rate on a mortgage with a 15-year term has slipped to 2.42%, down from 2.45% the previous week, according to Freddie Mac's 50-year-old survey.
The shorter-term of loans are popular with homeowners refinancing 30-year mortgages. A 15-year refi loan can slice your interest costs and help you pay off your home sooner than you originally expected.
Like 30-year mortgage rates, the 15-year rates also are historically low. A year ago, the typical 15-year loan had a rate of 2.77%.
Rates have backed off after recent surges that reflected investors' positive feelings about the economy. In times of economic improvement, investors pump money into the stock market, and yields on government bonds rise.
5/1 adjustable rate mortgages
The 5/1 adjustable rate mortgage, which is more closely tied to the prime rate than to the interest on Treasury bonds, increased to an average 2.92% last week, from 2.84%. A year ago, the loans averaged 3.40%.
Adjustable rate mortgages, or ARMs, “adjust” after a period of time that’s determined at the start of the loan.
With a 5/1 ARM, your rate is fixed for the first five years and then can change every (one) year.
Rates went too high, too soon?
The sharp upward movements in mortgage rates earlier this year may have represented an overly upbeat expectation that the economy was ready to come roaring back, says Simon Stevenson, a professor of real estate at the University of Washington.