April 12, 2021
With rates on the rise, refinancing is becoming more and more important. Learn why you should refinance soon. Get started on your refinance with Newrez today.
According to the latest data released from Freddie Mac, the 30-year fixed-rate just increased for the seventh consecutive week. The same report indicated that purchase demand remains generally strong, and it continues to be a busy time for the mortgage industry. Although rates are rising, they remain near historic lows, so refinance activity also remains high. Reasons for the recent increase in mortgage rates include an improving economy, inflation projections, and government stimulus spending.
Recently, we looked at a brief history of mortgage rates. In 1974 the average annual rate of inflation began rising before culminating at 9.5% in 1981. Lenders increased rates to keep up with rising inflation resulting in mortgage rate volatility. Corresponding hikes in the federal funds rate to combat inflation pushed the 30-year mortgage rate to an all-time high of 18.63% in October 1981. Although returned to historic norms, in 2000 the average rate had drifted back up to 8.05% before markedly decreasing by 2018. That year the average mortgage rate was 4.85%. Therefore, despite the rise in recent months, today’s mortgage rates are still low in comparison to the average rates of the last few decades. Let’s take a look at where rates are now as well as where they may be headed.
The 15-year fixed-rate has only been tracked by Freddie Mac since September 1991. Since that time, the 30-year fixed mortgage rates have always trended higher than the 15-year interest rate since the lender takes on the extra risk of default due to the longer term. Since that year, 15-year fixed mortgage rates have continuously tracked lower than 30-year rates. However, a 30-year rate offers a lower monthly payment. Compared to previous years, 15-year rates remain historically low. For example, in 1991 the average 15-year mortgage rate was 8.40%, in 2000 the yearly average for the 15-year mortgage rate was 7.72%, and in 2010 the average rate was 4.1%. On April 5th, 2021, the average 15-year refinance rate was just 2.6%. Moreover, data from Mortgage Bankers Association showed that the 15-year mortgage - both for new purchases and refinances - saw an increase in the percentage of new applications in 2020 compared to 2019.
To help provide some perspective on the financial impact that mortgage rates have, the monthly payment for a $100,000 mortgage in 1981 was $1558.58. Compare that to the monthly payment of $423 for a $100,000 mortgage at a recent rate of 3.02%. That’s a difference of over $1000 per month and $13,000 per year for the exact same loan amount.
It’s easy to understand why rates are an important factor when applying for a mortgage or refinancing. When mortgage rates are lower, buying a home can be more affordable. A lower payment may also allow for the purchase of a more expensive home.
If history is any indication, rates may continue to climb higher and return to historic norms. However, for the time being, mortgage rates remain near historic lows. That means that borrowers who qualify can still save thousands of dollars by lowering their mortgage rate through refinancing. A refinance will replace your current loan with a new loan that locks in today’s lower rate. Many homeowners are using the newly found extra savings to pay off credit card debt, make home improvements, or even go on an unexpected vacation. Whatever option you choose, it may be a prudent move to take a permanent vacation from the high rates that history has demonstrated might be lurking around the corner.
Capitalize on low rates now! Apply for a Refinance today!