In January, mortgage rates rose for the first time in a couple of months, which was likely because of the rising of long-term bond yields. The average interest rates for a 30-year fixed mortgage loan climbed up by 14 points to 2.79%—the highest the rate has been since November of last year. 

The 10-year Treasury yields typically move in unison with mortgage rates, and they have been rising steadily since early January. Those yields rose to 1.18%, which is the highest they’ve been since February of 2020. Ultimately, they dropped back down to 1.10%. High rates and high yields were both expected for this year, and most experts agreed that the mortgage interest rates would end up around 3.1% to 3.3% by the end of the year.

Related: When You Should Refinance

Rates Are Low, but so Is Inventory

people are moving in now more than ever

Mortgage interest rates may be rising, but they are still very low historically. At the same time, the number of homes going up for sale has sunk drastically since the end of last year. The construction of homes has been lagging behind the demand, likely because many homeowners are hesitant to try and sell their homes due to the global pandemic.

With the record low of homes for sale in December, real estate transactions overall fell also, which likely helped contribute to the already low supply. The number of homes for sale on the market in the U.S. fell below 700,000—an all-time low.

Home construction is expected to ramp up this year, which will hopefully help the choked market we are currently in, where there are many more buyers than homes for sale. Coupled with rising mortgage interest rates, it’s a challenging time for first-time homebuyers to get into the market.

The cities hit hardest in December last year were Nashville, Memphis, Charlotte, Atlanta, and Detroit, which all fell between 14 and 20%. On the other hand, San Jose, San Francisco, and Boston all saw a positive increase in homes for sale.

30 Year Mortgage Interest Rates

The average interest rates for a 30-year fixed mortgage loan jumped by 14 basis points up to 2.79%. While it was an increase, at this time last year, those rates were much higher at 3.65%. Here’s what those numbers look like in practice.

Borrowers that have a 30-year fixed-rate mortgage loan of $300,000 with that 2.79% interest rate would pay about $1,231 each month in principal and interest, not including other fees and taxes. Over the loan’s total life, the borrower would pay about $143,000 in interest. Someone who took out that same mortgage a year ago would pay an additional $50,000 in interest over the loan’s life.

Related: Different Types of Mortgages

15 Year Mortgage Interest Rates

The average interest rates for a 15-year fixed mortgage loan jumped up by seven basis points to sit at 2.23%. This time last year, for the same loan, the average rate was 3.09%. Let’s look at an example like the one for a 30-year loan.

Borrowers that have a 15-year fixed-rate mortgage loan of $300,000 with an interest rate of 2.23% would pay approximately $1,960 per month on the principal and interest with fees and taxes excluded, and they would pay about $53,000 in interest over the loan’s life.

Alt-text: Mortgage puzzle pieces

5/1 Adjustable Mortgage Interest Rates

The average interest rate for 5/1 adjustable-rate mortgages (ARMs) skyrocketed 37 basis points up to 3.12% from last week’s rate of 2.75%. Last year, these rates were 3.39%.

ARMs are a type of home loan with fluctuating interest rates based on the market. With a 5/1 ARM, the rates are fixed for the first five years and become variable after that time. That means that as the average rate rises or falls, so does your rate. 

ARMs traditionally have lower interest rates than other options, which makes them an attractive choice for many borrowers who plan to sell the home before that fixed period expires.

The Impact of Low-Interest Rates for Borrowers

moving in to new neighborhood

While mortgage rates are still at record lows, it remains an excellent time for many borrowers who want to save money on a new loan or refinance their current mortgage.

Borrowers who are looking to get the lowest rates should ensure that they have a credit score of 720 or above—lenders typically save the best rates for those with the best credit profiles since that’s a significant indicator that the borrower doesn’t carry many risks for defaulting or making late payments. Borrowers with lower credit scores still have the opportunity to get good rates, but they won’t get ones as low as someone with an exceptional score.

Before applying for a mortgage loan, it’s a good idea to check your credit score—many credit card companies and banks will let you do this without charge. Paying down your debt and making your monthly bill payments on time are the best ways that you can improve your score.

Another thing that lenders will look at, in addition to your credit, is your debt-to-income ratio (DTI), which is your monthly debt divided by monthly income. Your DTI basically shows the lender what you owe vs. what you earn. Borrowers with lower DTIs typically have a better chance at getting lower mortgage interest rates. To qualify for a refinance or mortgage loan, most lenders want to see a DTI of at least 43%.

When looking to refinance or get a new loan, one of the best things you can do is shop around to see where you can get the best rates from, rather than going with the first lender you talk to. You should go in knowing your credit score, DTI, and the current average interest rates. If you’re offered a higher interest rate than you were expecting, you can ask the lender why that’s the rate they are willing to give you so that you can start making necessary improvements to see lower rates.

Shopping around to refinance your mortgage or to get a new loan? Get in touch with the loan brothers at Mares MortgageSee what kind of rates we can get for you!

Related: What to Ask a Mortgage Lender