March 25, 2021 – Forbes Advisor

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The average rate on a 30-year fixed-rate mortgage has jumped 8 basis points this week to 3.17%, increasing for the sixth week in a row as we enter the spring home buying season.

Rates are about to exceed 2021 predictions from experts, which pinned rates in the low 3% range. But if this upward trend continues, rates could hit the upper end of the 3% range by the middle of the year.

If there is a benefit to higher interest rates, that’s what causes them. According to Joel Kan, associate vice president of economic and industrial forecasting at the Mortgage Bankers Association (MBA), “Faster economic growth, an improving job market and increased vaccine distribution are pushing rates up.”

Related: Compare the best mortgage lenders

Higher rates mean buyers can’t afford as many homes

In today’s fiercely competitive real estate market, home buyers need all the help they can get. Unfortunately, mortgage rates, while historically low, don’t necessarily help these days. With higher rates, purchasing power decreases as loans become more expensive, which must be factored into the budget.

Considering that home prices soared in February (traditionally one of the slowest months for real estate) by 15.8% from a year ago, homebuyers are poised to take a shock and serious competition.

The US real estate market is also facing the lowest level of homes for sale on record. In February, inventories fell 29.5% year-on-year, according to the National Association of Realtors.

“The imbalance between supply and demand has caused home prices to rise sharply, with the median selling price increasing almost 16% nationally and almost 21% in the West,” said Mike Fratantoni, Executive Vice President and Chief Economist of MBA.

Sales slowed last month, falling 6.6% from January, in part due to severe winter storms. But home sales were still up 9.1% from a year ago. Real estate experts say there is no shortage of buyers. Even in places like New York City, which saw a huge spike in cases and deaths early in the pandemic and witnessed the economic fallout. As a result, buyers are lining up to strike a deal.

“The market is already very hot, hotter than before the pandemic. It’s because buyers want to lock in low mortgage rates and they don’t want to miss out on pandemic deals, ”says Wei Min Tan, a real estate broker at R New York. “There is now too much demand to chase the declining supply as contracts signed exceed new listings in the market.”

30 year fixed rate mortgages

The average 30-year benchmark fixed mortgage rate jumped 8 basis points to 3.17%, according to Freddie Mac’s Prime Mortgage Market Survey. At the same time last year, the 30-year fixed rate was 3.50%.

Borrowers with a fixed rate mortgage of $ 300,000 over 30 years with a current interest rate of 3.17% would pay $ 1,292.48 per month in principal and interest (taxes and fees not included), according to the Forbes advisor. mortgage calculator shows. The total interest paid over the life of the loan would be $ 165,293.96.

That same mortgage taken out a year ago would cost an additional $ 19,674.30 in interest over the life of the loan.

15 year fixed rate mortgages

The average rate on a 5/1 variable rate mortgage climbed 5 basis points to 2.84%. Last year, the 5/1 ARM was 3.34%.

Borrowers with a 15-year fixed rate mortgage of $ 300,000 with a current interest rate of 2.45% would pay $ 1,993.31 per month in principal and interest (plus taxes and fees). The total interest paid over the life of the loan would be $ 58,796.56.

5/1 arm

The average rate on a 5/1 variable rate mortgage increased by 2 basis points to 2.79%. Last year, the ARM 5/1 was 3.11%.

Arms are real estate loans whose interest rate fluctuates with the market. In the case of ARM 5/1, the first five years have a fixed rate and then change to a variable rate. This means that when the average rate goes up or down, your rate will also go up.

Traditionally, ARMs have lower interest rates than fixed rate options, making them an attractive choice for borrowers who plan to sell before the fixed period expires.

What low rates mean for borrowers

Mortgage rates are at record highs, so this could be a good time for many people who want to save money on a new home loan or refinance their existing mortgage.

Borrowers who wish to obtain the lowest rate should make sure they have a credit score of at least 760. Lenders reserve their ultra-low rates for those with a strong credit profile, as this is a major indicator that borrowers run a low risk of late payment or default. In fact, borrowers with lower credit scores may be charged a percentage point or more than borrowers with very good or excellent scores.

Before applying for a mortgage, check your credit score. Many banks and credit cards allow you to do this for free. One way to improve your score relatively quickly is to pay off your debt. You can also apply for credit to pay your monthly bills on time, such as your internet or utility bills.

In addition to your credit score, lenders will look at your debt to income ratio, or DTI. This is your total monthly debt divided by your gross monthly income. It is basically an overview of how much you owe versus how much you earn. The lower your DTI, the better your chances of getting a lower interest rate. Most lenders require a minimum DTI of 43% just to qualify for a mortgage or refinance.

Finally, studies have shown that people who shop tend to get lower rates than those who get a mortgage from the first lender they talk to. Know what the current average interest rate is as well as your credit rating, income, debt, and expenses before you start applying. If the lenders are offering you a higher rate than you expected, be sure to ask them why so you can start improving those areas for a lower rate.

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