Fox Business just released a new report showing the 30-year mortgage rates are dropping one last time before the year ends, but this may be the final moments for historically low interest rates. Meanwhile, 15 year mortgages appear to be holding steady, while 10 year rates are beginning to trend up, an indicator that rates overall may be spiking sooner rather than later.
For homeowners looking to refinance, that may mean the time to act is now. Rates under 2% are still available to qualified homeowners, but the clock is ticking on these numbers, as most market experts predict a major uptick in rates in Q1 of 2022.
For now, the average 30 year fixed rate sits at 3.125%, while the 20 year fixed rate is at 2.875%, 15 year mortgages at 2.25%, which is the same mark the 10 year fixed options are currently at. To see exactly what you might qualify for, you should first check your current credit score and profile to lock in the lowest rates possible.
Refinancers Locking In Low Rates Before the Holidays
Typically, the holiday season spells a lull in home sales, but, this year, it appears as if folks looking to lock in historically low rates are a bit quicker on the trigger when it comes to closing on a new home. Refinances are falling into the same category, with many looking to lock in historically low rates before they may be a thing of the past, for good.
The fourth quarter of 2021 was volatile. But as of now, it seems that rates are beginning to settle. The question is, is this the calm before the storm of 2022, when most experts are predicting skyrocketing rates, record inflation, and a chaotic market in general.
The Federal Reserve seems to be of the same mind, as their projections are showing substantial rate increases through 2022. For this reason, many are recommending that homeowners who may have been considering a refinance do so sooner rather than later.
Looking to the Past as an Indicator
Ten or fifteen years ago, mortgage rates at or below 2% were unheard of. A “good” mortgage rate back then may have been 5 or 6%, with some homeowners even feeling lucky to lock in a rate around 7%.
Times have clearly changed since then, although the Great Recession of 2008 may not be such a distant memory as Omicron surges, and the threat of a lockdown once again looms. For homeowners looking for a sense of financial security, refinancing now into a fixed rate mortgage with a rate between 2 and 3%, or even lower, seems like a very savvy move.
Credit score and credit history, debt to income ratio (DTI), home equity or down payment, and more, are just some of the factors that lenders will take into account when considering your refinance. The key is locking in a manageable monthly mortgage payment, while still providing you a cushion to build your savings and investments.
The Average Mortgage Rate of Today
Current mortgage rates are holding at an average of 2.625% across all rates and terms. The most popular home loan option is still the 30 Year Fixed mortgage, as this term typically provides the homeowner with the lowest monthly payment possible.
The flip side of the 30 year mortgage is the interest rates tend to be higher than the shorter term mortgages, as banks are naturally risk averse, and the quicker a home loan is paid off, the less risk a lender is exposing itself to in terms of regrouping its investment.
For the homeowner, the higher the interest rate, and the longer the term, the more they’ll pay in interest payments over the life of the loan. This results in a higher total cost of mortgage, which is always something to take into consideration.
Shortening Your Term to Save
For this reason, some refinancing homeowners will choose shorter repayment terms, such as the 20 year fixed, which currently holds an average interest rate of 2.875%. Cutting 10 years off the life of your mortgage loan means less interest payments and a lower total cost of mortgage.
15 year mortgages will provide even less interest payments than the 20 year option. The current average 15 year fixed rate stands at 2.25%. There are ways to keep your monthly mortgage payment manageable even with a 15 year option, and you’ll own your home sooner and pay substantially less in interest payments over the life of the loan.
Ultimately, it’s your call as the homeowner. Whether it’s a shorter term refinance, like a 10 or 15 year loan, or a slightly longer term, ranging from 20 to 30 years, you’ll still have the option, at least for now, of qualifying for historically low rates between 2 and 3%, or even less. But if mortgage market experts are right, and they usually are, these historically low rate options may not be around for much longer.