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Mortgage rates spiked this week to over 3% for the first time in 10 weeks.
While current mortgage rates are still exceptionally low in a historical sense, the latest increase could be a sign of what’s to come for prospective homebuyers and homeowners who could benefit from a refinance. While you can still lock in a low rate, experts have predicted mortgage rates will increase this year. So while this latest upward swing isn’t entirely unexpected, it is a change from how stable they’ve been in recent weeks.
What This Means If You’re Interested in Refinancing
If you’ve been on the fence about whether or not to look into refinancing your mortgage, now is still a great time to do it. But don’t risk waiting much longer, says Ali Wolf, chief economist at Zonda, a California housing data and consultancy firm. Interest rates will likely stay low for a few more months, so there is still time, says Wolf. “If you have not refinanced over the past four or five years, I would say, get going.”
There are many factors to consider when refinancing, such as the length of the new repayment term, the upfront closing costs, and how long you’re planning to stay in your home. But you have the potential to save hundreds of dollars a month and thousands of dollars in interest over the life of the loan. For example, let’s say you go from a 4% to a 3% rate. The 1% rate drop on a 30-year, $300,000 home loan would cut your monthly payment by $168 and save you over $60,000 in interest over the life of the loan.
What This Means for Homebuyers
But for homebuyers, today’s historically low mortgage rates are a bit of a double-edged sword. Low rates have increased buyers’ purchasing power, and that, combined with low inventory, has caused home prices to spike. Homebuyers may qualify for a favorable rate but are struggling to get their offers accepted in today’s market, where bidding wars are becoming normal.
Regardless of what type of mortgage you need — purchase or refinance — it’s important to compare offers from different mortgage lenders to find the best deal. Every lender will evaluate your finances differently, which will affect your rates and fees.
Pay attention to the fine print regarding fees. Even if you’re not paying them out of pocket because you choose a no-closing-cost refinance, your closing costs could be added onto your loan balance, or you may be charged a higher interest rate. So be sure to carefully review the Loan Estimate provided by each lender after you submit your application.
What This Means for Mortgage Rates In the Future
As the economy continues to recover from the damage done by the pandemic, many experts expect mortgage rates will continue to rise in 2021. So whether you are a prospective homebuyer or a homeowner who could benefit from a refinance, make sure you are paying attention to how rising rates might impact your situation.