According to Freddie Mac, mortgage rates rose this week, continuing a month-long trend of rate hikes. The average interest rate on a 30-year fixed-rate mortgage is 5.89%, the highest since 2008. For the 15-year fixed-rate mortgage, interest rates topped 5% for the first time in 13 years.
Borrowing costs for the 5/1 adjustable-rate mortgage also rose this week, although they’re still lower than fixed rates — as a result, more homebuyers have turned to ARMs in recent weeks, data from Association of Mortgage Banks shows. Here are the current mortgage rates as of September 8th:
- 30 years fixed: 5.89% with 0.7 points (up from 5.66% a week ago, up from 2.88% a year ago).
- 15 years fixed: 5.16% with 0.8 points (up from 4.98% a week ago, up from 2.19% a year ago).
- 5/1 year adjustable: 4.64% with 0.4 point (up from 4.51% a week ago, up from 2.42% a year ago).
“Mortgage rates rose again as markets continue to grapple with the prospect of more aggressive monetary policy to combat elevated inflation. Not only are mortgage rates rising, but interest rate dispersion has also increased, meaning borrowers can benefit from scouting for a better rate. Our research shows borrowers could save an average of $1,500 over the life of a loan if they get an additional interest quote, and average about $3,000 if they get five quotes.”
– Sam Khater, Freddie Mac’s chief economist, in a statement Sept. 8
It might be an understatement to say that homebuyers are in a very different situation today than they were a year ago. Aside from building a time machine, there’s not much mortgage applicants can do to lock in the coveted sub-3% interest rate that’s fueled the housing market in 2021, as mentioned in last week’s column.
Although today’s buyers are stuck in a much less favorable interest rate environment, they have one money-saving tool at their disposal – mortgage interest buying. This is especially true when one takes into account the dispersion mentioned by Khater, namely the spread between the highest and lowest rates offered to similar applicants. In the table below you can see how the monthly payments and the total interest burden are affected by small interest rate changes.
|quote 1||quote 2||quote 3|
|Total Interest Paid||$352,535||$363,316||$374,953|
Estimated borrowing costs for a 30-year fixed-rate mortgage on a $400,000 home at a 20% discount.
That doesn’t mean that by comparing offers, you’ll get a notch or two difference in your mortgage rate. But by saving just a fraction of a point in interest, you can save thousands of dollars over the life of your home loan.
Indicator of the week: Shop until your rate goes down
With mortgage rates on the rise again, it’s more important than ever to compare loan offers from multiple lenders. In a volatile interest rate environment, you can save in the short term (on your monthly payment) and long term (on your total interest payments) by looking for the lowest interest rate possible. This is how installment purchase works:
- Contact at least three lenders. Also, try a mix of different types of lenders – for example, banks, credit unions, and online-only lenders. Additionally, it may help you to connect with your local mortgage loan officer to gain a better understanding of state, provincial, or city housing authority programs that aim to save you money.
- Get a mortgage pre-approval from everyone. Keep your installment purchases within a 45-day window to minimize the negative impact on your credit score. Multiple requests during this period are considered a single request according to the FICO scoring model.
- Compare credit estimates. You should look at both the interest rate and the APR, or APR, which includes the total cost of borrowing (including interest and fees). Keep an eye on various closing costs and see if any of the lenders on your shortlist offer any type of down payment assistance.
With several loan offers, you can choose the home loan with the most favorable mortgage rate for your financial situation. But manage your expectations because you’re unlikely to find a price today that compares to last year’s average prices.