Doug Whiteman – MoneyWise – Saturday, September 12, 2020
According to a popular survey that’s been around since 1971, mortgage rates have hit a record low — for the ninth time in 2020. Mortgage company Freddie Mac says its survey shows mortgages this week are averaging just 2.86%.
You might assume you’ve got plenty of time to grab that kind of super-low rate if you want to buy a home or have been thinking it’s time to refinance your mortgage. After all, the Federal Reserve has said it’ll hold interest rates close to zero for years.
But while it’s true mortgage rates are likely to remain pretty cheap by historical standards for quite some time, the days of all-time-low rates could end soon. Borrowers who wait just a few weeks could wind up with higher monthly payments and much stiffer lifetime interest costs.
Here comes a new fee
Lenders are expected to push their rates higher this fall as Freddie Mac and Fannie Mae impose a new fee — for real this time.
The government-sponsored companies, which buy or guarantee most U.S. home loans, initially told lenders in mid-August that a 0.5% on refinance loans would take effect on Sept. 1. And, lenders freaked out.
Within two days, the average rate for a 30-year fixed-rate mortgage soared from 2.92% to 3.14%, according to Mortgage News Daily. Rates cooled off again in late August, when Fannie and Freddie’s regulatory agency put the fee on hold until Dec. 1.
Zillow economist Matthew Speakman says the surcharge is likely to mean “substantive increases” in mortgage rates this fall, and way earlier than you might think.
“Even though the adjustment won’t officially be imposed until Dec. 1, lenders are likely to start applying it to loans as soon as October, meaning the adjustment’s impact will likely show up in rate quotes in as little as a few weeks,” he writes.
That means house shoppers looking to buy, and homeowners wanting to refinance, should lock a low mortgage rate quickly.
How much higher will rates go?
Fannie Mae and Freddie Mac say they need the revenue from what they’re calling the “adverse market fee” to cover their expected losses from defaults and other issues related to the coronavirus financial crisis.
As the fee becomes a thing, it’s likely to increase mortgage rates by one-eighth to one-quarter of 1 percentage point (0.125 to 0.25), says Matthew Graham, chief operating officer of Mortgage News Daily. In other words, today’s 30-year rate of around 2.85% would jump as high as 3.10%.
“While that might not sound significant, this is the biggest change of its kind, ever,” Graham says.
Here’s what that difference would mean for a borrower:
With the rate hike, you’d pay an additional $408 a year — and more than $12,000 extra over time. So, borrowers have “a compelling cases for locking,” says Graham.
But first, you’ve got find a low rate and the lender who will give it to you. Get mortgage offers from a bunch of lenders and compare them, to uncover the best deal in your area and for a person with your credit score.
If your comparison shopping is successful, remember that when you buy or renew your homeowners insurance. Seek rate quotes from multiple insurers and look at them side by side, to get the coverage you need without paying too much.