15-year fixed mortgages drop to record low of 2.1%

Where is the bottom?

This week the Freddie Mac primary market mortgage survey shows the 15-year fixed hitting a record-low of 2.1% with a 0.7-point cost.

One year ago, during Wave 1 of the COVID-19 triggered refinance mania, the 15-year was 41 basis points higher at 2.51%.

The 15-year fixed is currently available at a 1.75% interest rate in California if you are willing to pay some points. Because mortgage sizes are much larger in California, mortgage pricing is always better than Freddie’s national polling shows.

The average 30-year fixed is currently at 2.8%, Freddie Mac reported, just 15 basis points above its Jan. 7 all-time low of 2.65%

Before I explain what is going on, let me first eat some crow.

Just two months ago, I wrote a column predicting the 30-year fixed rate would hit 3.5% by year end. There have been just a handful of times in the past 50 years where mortgage rates have climbed about three-quarters of a percentage point in five months, according to Freddie Mac historical data.

In most cases, that occurred when hyperinflation was in the wind. The inflation pressures in front of us today are nowhere close to hyperinflation. So, the chances of us seeing 3.5% by year end are slim and none. Crow it is.

Obviously and quite unexpectedly, a new COVID-19 virus variant named Delta is clobbering many corners of America. New cases are rapidly mounting. Masking up is the new mandate-again.

Uncertainty is never good for the economy. Uncertainty tends to drive rates down. Are we going back to lockdown mode? When will this new strain get contained? What is next? Will we see a wave of some other variant when this one comes to an end?

Here’s what we do know: Federal Reserve Chair Jerome Powell announced Wednesday, July 28, that the Fed will continue to buy at least $40 billion of mortgage-backed securities each month until substantial further progress has been made toward maximum employment and price stability goals.

Remember, Fannie and Freddie dropped their one-half point “adverse market” fee for refinanced mortgages a few weeks ago. That saves borrowers $2,500 on a $500,000 loan.

With home prices and home appreciation exploding, Black Knight reported America had $8.1 trillion of tappable home equity as the first quarter of the year.

Black Knight’s Optimal Blue refinance rate-lock data shows 42% of all rate locks were for cash-out refinances during the first three weeks of June.

As of July 21, Black Knight data shows nearly 14 million borrowers could save almost $300 per month by refinancing. Of those, more than 1.8 million were in California. The estimated savings to California refinance borrowers was even higher at more than $400 per month.

Local refinance activity over the past few years has been remarkable.

Starting in the first quarter of 2019, refinance volume in Los Angeles, Orange, Riverside and San Bernardino counties increased 10%-20% each quarter through December 2020, according to Attom Data Solutions. The exception was in the first quarter of 2020, when volume dropped as COVID-19 first hit.

If you want to take cash-out, you should determine if you are better off refinancing your first mortgage or getting a home equity line of credit, or HELOC.

Generally, if you have a really good rate right now and you don’t want to pull out much cash, a HELOC might be a better choice. Most banks don’t charge anything to get a HELOC.

The downside of a HELOC is rates and payments may adjust monthly.

If you are looking to drop the rate you pay for a fixed loan, you should be able to get around 2.875% on a 30-year fixed and 2.375% on a 15-year fixed without any closing costs. This assumes excellent income, credit, and equity.

The biggest break is if you can go from a 30-year fixed to a 15-year fixed. You can typically reduce your interest rate by 0.5% by taking on the shorter-term mortgage.

Freddie Mac rate news: The 30-year fixed rate averaged 2.8%, 2 points higher than last week. The 15-year fixed rate averaged 2.1%, a record-low that’s 2 basis points lower than last week.

The Mortgage Bankers Association reported a 5.7% increase in mortgage application volume from the previous week.

Bottom line: Assuming a borrower gets the average 30-year fixed rate on a conforming $548,250 loan, last year’s payment was $55 more than this week’s payment of $2,253.

What I see: Locally, well-qualified borrowers can get the following fixed-rate mortgages without closing costs: A 30-year FHA at 2.5%, a 15-year conventional at 2.375%, a 30-year conventional at 2.875%, a 15-year conventional high-balance ($548,251 to $822,375) at 2.5%, a 30-year conventional high-balance at 3.125% and a 30-year fixed jumbo at 3.25%.

Eye-catcher loan of the week: A 15-year fixed mortgage at 1.75% with 1.625 points cost.

Jeff Lazerson is a mortgage broker. He can be reached at 949-334-2424 or jlazerson@mortgagegrader.com. His website is www.mortgagegrader.com.

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