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Mortgage rates drifted lower this week, taking back a little of last week's rise.

Freddie Mac reported today that the average offered rate for a conforming 30-year fixed-rate mortgage declined by two basis points (0.02%), sliding back to 2.77%. Conforming fifteen-year FRMs did the same, with a two basis point slide decreasing the averaged offered rate to 2.21%, while the initial fixed interest rate on a hybrid 5/1 ARMs moved just as erratically downward this week as it did upward last week, posting a decline of 32 one-hundredths of a percentage point to drop back to 2.80% for the week. As we did last week, we suspect there are survey-sample issues in the Freddie Mac data that are the cause of the wild swings.

The rather large sell-off in bonds of over a week ago continues to fade and settle, and interest rates have begun to drift back a little in response. A light calendar of economic news isn't giving much for investors to ponder at the moment, and the markets are turning focus to President Biden's plans for more stimulus, regulations and nominees for cabinet positions and how these changes will affect and shape the coming months and years.

For the moment, it appears as though the influential yield on the 10-year U.S. Treasury has settled into a new range, and with spreads from the Treasury to mortgages near normal levels, it may be hard for mortgage rates to decline much from present levels, but they still don't have much reason to rise, either. That suggests a flat pattern for mortgage rates in the next few days.

In each week's MarketTrends newsletter, we track and discuss economic conditions that affect mortgage rates and their impact on housing markets and consumers. Read the most recent edition on HSH.com or subscribe for email delivery.

Week 30-year-Fixed 15-year-Fixed 5-year-ARM
01/21 2.770% 2.210% 2.800%
01/14 2.790% 2.230% 3.120%
01/07 2.650% 2.160% 2.750%
12/31 2.670% 2.170% 2.710%
12/24 2.660% 2.190% 2.790%
12/17 2.670% 2.210% 2.790%
12/10 2.710% 2.260% 2.790%
12/03 2.710% 2.260% 2.860%
11/25 2.720% 2.280% 3.160%
11/19 2.720% 2.280% 2.850%
11/12 2.840% 2.340% 3.110%
11/05 2.780% 2.320% 2.890%

Mortgage Choices at a Glance

Loan type/terms Fixed 30 years Fixed 15 years/
20 Years
Hybrid ARM Traditional ARM Balloon Mortgage
Rate changes
  • Never; Fully fixed for entire term
  • Never; Fully fixed for entire term
  • Usually after fixed period of 3, 5, 7 or 10 years
  • After that, annual change typical
  • Fully variable
  • Typically changing at one-year intervals
  • Some have shorter change intervals
  • Never; Fully fixed for entire term
Benefits
  • Low, stable payment
  • Usually easiest qualification
  • Stable payments
  • Builds equity faster
  • Lower total interest costs than 30-year term
  • Lower rates than fully fixed-rate mortgage
  • Can sometimes borrow larger loan amount for same income
  • Can have lowest interest rates
  • Qualification may not depend upon today's interest rate
  • Often has lower interest rate/monthly payment over balloon period than fixed rate
  • Similar to hybrid ARM
Drawbacks/Risks
  • Can have highest total interest cost over time
  • User may "buy" more rate stability than actually needed, increasing cost
  • Requires higher income to qualify
  • Less affordable monthly payment
  • Funds commited to payment cannot be used elsewhere
  • Stable payment for a number of years, then unpredictable
  • Rates can jump by as much as 6 percentage points at first adjustment
  • Payments fluctuate at each rate change
  • Unpredictable, rates can change as much as 2 percentage points at each adjustment
  • Loan fully due and payable when balloon period ends
  • Must be paid off or refinanced in unknown market conditions
Alternative strategy
  • Consider Hybrid ARM with appropriate fixed period
  • Consider 30-year term and prepaying loan to preserve cash-flow flexibility
  • Consider Fixed rate mortgage or longest possible fixed period, if loan hold period not known
  • Consider Hybrid ARM to ameliorate rate and payment risks for a given period
  • Consider Hybrid ARM to ensure continued loan availability
These may be useful for...
  • Purchasing a home
  • First-time homebuyers
  • Refinancing to improve cash flow/lower payment
  • Refinancing to lower total interest cost
  • Retiring mortgage more quickly
  • Building or rebuilding equity more quickly
  • Purchasing or refinancing when time horizon is seven years or shorter, and where borrower can handle increase in monthly payments
  • Purchasing or refinancing when interest rates are near top of cycle, and are likely to fall, or sale or refinance is anticipated within three years
  • Purchasing or refinancing when time horizon is three years or longer and home will be sold prior to end of balloon period
Consider if
  • Buying or refinancing a home and planning on owning for longer than 10 years
  • Buying second home
  • Refinancing to build equity
  • Paying off mortgage before life event (retirement, etc)
  • Buying a home and expect to move before fixed period ends, or know income will rise to offset payment risk, even in worst-case scenario
  • Buying or refinancing when income can handle frequent payment changes and worst-case scenario for rates over a four-year period
  • Buying a home and expect to move before balloon period ends, or have resources to pay off mortgage if refinance not available
When shopping, ask about
  • "Full cost" vs. "No cost" refinances, prepaying loan to shorten term if desired
  • If 20-year term makes payment too high, whether 25-year term is available
  • Interest rate caps, for first and subsequent adjustments, worst-case scenario
  • A history of the Index the loan is keyed off, margin and caps
  • Whether or not there is any built-in refinancing option when the balloon period ends
Useful tools & resources

Latest Mortgage Rate Analysis

HSH's longer-range outlook for mortgage rates, where we review our last forecast,discuss current market influences and provide our expectations for mortgage rates over the next nine weeks.

Mortgage Calculators

Mortgage rates and more

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