by Maurie Backman | Feb. 19, 2021
The Ascent is reader-supported: we may earn a commission from offers on this page. It’s how we make money. But our editorial integrity ensures our experts’ opinions aren’t influenced by compensation. Terms may apply to offers listed on this page.
Buyers and refinancers alike are backing off as mortgage rates start to rise.
Mortgage rates -- including refinance rates -- have sat at or near record lows since the summer, and that's pushed a lot of people to either buy new homes or swap their existing home loans for new ones with more favorable borrowing terms. But the Mortgage Bankers Association is now reporting that total mortgage volume fell 5.1% last week compared to the week prior. The reason? Interest rates rose slightly for both purchase mortgages and refinances. And while today's rates are still quite competitive, home buyers in particular may be getting turned off.
Home values have skyrocketed over the past six months as low inventory and mortgage rates have caused an uptick in buyer demand. But with mortgage rates rising, it's harder to make the case to buy in today's restrictive, inflated market. In fact, many of today's buyers need to secure a low mortgage rate to compensate for higher home prices, and in the absence of that, today's listings may be out of their budget.
Of course, today's mortgage rates are still extremely competitive on a historic level. But they're also likely to stay competitive for at least the rest of the year, and possibly beyond. As such, it could pay for prospective buyers to sit tight for the next month or so and see if home prices come down a bit, or if rates creep back downward.
While it makes sense that the demand for new purchase mortgages would wane as rates climb, what's more surprising is that existing homeowners have pulled back on refinancing. It could be that some are holding out for better rates after a recent uptick. But unlike new home buyers, who need to snag low mortgage rates to afford today's inventory, existing homeowners stand to reap plenty of savings by getting new loans with more favorable terms.
This is one of the top lenders we've used personally to secure big savings. No commissions, no origination fee, low rates. Get a loan estimate instantly and $150 off closing costs.
Refinance rates generally tend to be a bit higher than purchase mortgage rates. But also, today's rates are so low that some homeowners may be in a good position to refinance a 30-year or 20-year mortgage to a 15-year loan without seeing too drastic an increase in their monthly payments. Refinancing to a loan with a shorter term is a good way to save a lot of money on interest in the course of repaying it.
Rates for both purchase mortgages and refinances may continue to increase, but most likely, those increases will be gradual. With the U.S. economy still in shambles, there's unlikely to be major movement across any consumer interest rate category, mortgages included.
Today's buyers and homeowners should also recognize that a 30-year mortgage that comes in at under 3% is still a terrific deal, historically speaking. This holds true for both new purchase mortgages and refinances. What's more, those looking to score a good deal on a new mortgage or refinance should shop around with multiple mortgage lenders to see what offers they may be eligible for based on their credit and finances.
Chances are, interest rates won't stay put at multi-decade lows for much longer. That's why taking action today is crucial, whether you're wanting to refinance and cut your mortgage payment or you're ready to pull the trigger on a new home purchase.
The Ascent's in-house mortgages expert recommends this company to find a low rate - and in fact he used them himself to refi (twice!). Click here to learn more and see your rate. While it doesn't influence our opinions of products, we do receive compensation from partners whose offers appear here. We're on your side, always. See The Ascent's full advertiser disclosure here.
We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.
The Ascent is a Motley Fool service that rates and reviews essential products for your everyday money matters.
Copyright © 2018 - 2021 The Ascent. All rights reserved.