Mortgage rates rose this week, according to Freddie Mac, continuing a month-long trend of rising rates. The average interest rate on a 30-year fixed mortgage is the highest since 2008, at 5.89%. For the 15-year fixed mortgage term, rates topped 5% for the first time in 13 years.
Borrowing costs for the 5/1 variable rate mortgage have also increased this week, although they remain below fixed rates – as a result more homebuyers have turned to ARMs in recent weeks, according to data from Mortgage Bankers Association shows. Here are the current mortgage interest rates, as of September 8:
- Fixed 30 years: 5.89% with 0.7 point (compared to 5.66% a week ago, compared to 2.88% a year ago).
- 15-year fixed: 5.16% with 0.8 points (compared to 4.98% a week ago, compared to 2.19% a year ago).
- 5/1 year reviewable: 4.64% with 0.4 points (compared to 4.51% a week ago, compared to 2.42% a year ago).
“Mortgage rates have risen again as markets continue to manage the prospect of more aggressive monetary policy to combat high inflation. Not only are mortgage rates rising, but rate dispersion has also increased, which means borrowers can benefit from finding a better rate. Our research indicates that borrowers could save an average of $1,500 over the life of a loan by getting an additional quote and an average of around $3,000 if they get five quotes.
– Sam Khater, chief economist at Freddie Mac, in a Sept. 8 statement
It is perhaps an understatement to say that homebuyers find themselves in a much different situation today than they were just a year ago. Short of building a time machine, there is little that mortgage seekers can do to lock in that coveted sub-3% interest rate that fueled the housing market in 2021, as mentioned in the column from last week.
Although today’s buyers are stuck in a much less favorable rate environment, there is a savings tool at their disposal: mortgage rate shopping. This is especially true when considering the dispersion mentioned by Khater, which is the spread between the highest and lowest rates offered to similar candidates. You can see in the table below how monthly payments and overall interest charges are impacted by small 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 with a 20% down payment.
This does not mean that comparing offers will give you a difference of one or two points on your mortgage rate. But saving just a fraction of a point of interest can translate into thousands of dollars in savings over the life of your home loan.
Indicator of the week: shop until your rate drops
With mortgage rates on the rise again, it’s now more important than ever to compare loan offers from multiple lenders. In a volatile rate environment, seeking the lowest possible interest rate could save you money in the short term (on your monthly payment) and in the long term (on total interest payments). Here’s how buying fares works:
- Contact at least three lenders. Also try a combination of lender types – for example, banks, credit unions and online-only lenders. Additionally, getting in touch with your local mortgage agent can help you better understand state, county, or city housing authority programs designed to save you money.
- Get a mortgage pre-approval from everyone. Keep your rate purchases within a 45-day window to minimize the negative impact on your credit score. Multiple inquiries during this period will count as one inquiry, depending on the FICO scoring model.
- Compare loan estimates. You’ll want to look at the interest rate as well as the annual percentage rate, or APR, which includes the total borrowing cost of the loan (including interest and fees). Keep a close eye on miscellaneous closing costs and see if any of the lenders on your shortlist offer down payment assistance.
With several loan offers in hand, you can choose the home loan with the lowest possible mortgage rate for your financial situation. But manage your expectations, because you’re unlikely to find a rate today that compares to last year’s average rates.