Mortgage rates carved out a new low in the first week of 2021, following 16 records reached last year.
The rate on the 30-year fixed mortgage hit an average of 2.65% this week, according to Freddie Mac, a government agency that backs millions of mortgages. That’s down from 2.67% last week and down from the previous low of 2.66% set on Dec. 24, based on records dating back to 1971.
“Lower mortgage rates mean greater savings for those looking to refinance, which can in turn be used to help other sectors of the economy,” said Selma Hepp, deputy chief economist at CoreLogic. “Low rates are likely to persist in the upcoming weeks and should be a boost for both refinance and purchase housing activity.”
‘Not everyone is able to lock in these low rates’
A total of 18.8 million American homeowners are eligible to take advantage of this new rate and would be able to save $316 on average a month, according to data provided to Yahoo Money from BlackKnight, a mortgage data and analytics firm. This translates to $5.9 billion in aggregate savings per month.
California has approximately 2.89 million refinance candidates who can save an average of $431 a month, the largest average tally of any state, BlackKnight found
But not all homeowners will qualify for the historically low rates, especially if they suffered a financial setback during the pandemic. Lending standards have tightened since the pandemic began.
“Unfortunately, not everyone is able to lock in these low rates since the rate offer often depends on the borrower’s financial risk profile,” Hepp said, “such as FICO score, [loan-to-value] ratio, [debt-to-income] ratio, type of income, [and] other assets.”
Low rates help offset refinancing fee
Low rates also will help to offset the adverse market refinance fee on loans backed by Freddie Mac and Fannie Mae that went into effect in December.
The Federal Housing Finance Agency — which supervises both agencies — imposed a 0.5% fee on loans worth $125,000 and more. The fee would help to compensate for the $6 billion in losses the agencies incurred from pandemic forbearance plans.
“For refinances, the lower rate is a welcome move, as it helps to soften the blow of the adverse market refinance fee,” said George Raitu, senior economist at Realtor.com, a real estate listing site. “The 50-basis point fee adds $500 for every $100,000 borrowed, which translates into $1,500 for a $300,000 loan.”
For homeowners who are on the fence about refinancing, now may be the time to strike. Raitu foresees rates inching higher later in the year.
“The fee is expected to temper refinancing activity as we move through 2021,” Raitu said, “and rates are likely to rise.”