Mortgage rates today: Thursday, Feb. 25, 2021
On Thursday, Feb. 25, 2021, the average interest rate on a 30-year fixed-rate mortgage rose six basis points to 3.084% APR. The average rate on a 15-year fixed-rate mortgage rose one basis point to 2.383% APR and the average rate on a 5/1 adjustable-rate mortgage fell one basis point to 2.92% APR, according to rates provided to NerdWallet by Zillow. The 30-year fixed-rate mortgage is 17 basis points higher than one week ago and 42 basis points lower than one year ago. A basis point is one one-hundredth of one percent. Rates are expressed as annual percentage rate, or APR.
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Mortgage rates this week
Mortgage rates didn't move in a unified direction in the week ending Feb. 19, and there was a wee slump in refinancings.
The 30-year fixed-rate mortgage averaged 2.91% APR, up 12 basis points from the previous week's average.
The 15-year fixed-rate mortgage averaged 2.30% APR, down three basis points from the previous week's average.
The five-year adjustable-rate mortgage averaged 2.96% APR, same as the previous week's average.
The climb in the 30-year rate seems to have chilled enthusiasm for refinancing, as refinance applications declined 5% from a week earlier, according to the Mortgage Bankers Association. Still, the average rate on the 30-year fixed was 86 basis points lower this week than at the same time in 2020, so refinance activity was up significantly compared with a year ago.
The big housing-related news of the week came from the federal government. For homeowners with FHA-, VA- and USDA-backed loans, it extended the deadline for filing an initial request for COVID-related mortgage forbearance. The new deadline is June 30. There is also a foreclosure moratorium on FHA, VA and USDA loans that expires June 30.
There is no deadline for requesting an initial forbearance on mortgages backed by Fannie Mae or Freddie Mac. The foreclosure moratorium for Fannie and Freddie loans expires March 31.
February mortgage rates forecast
The average rate on the 30-year fixed-rate mortgage went up in January, after falling seven months in a row. But don't fret. The story is more comforting than that.
The 30-year mortgage averaged 2.92% APR in January, up from an average of 2.88% in December. The benchmark mortgage rate had fallen every month from May (3.37%) to December.
Imagine January's mortgage rates as a monthlong backpacking trip in the mountains. From the trailhead, the 30-year mortgage trudged up a long climb, then camped for about a week near the summit, then scrambled down a lengthy descent. The 30-year fixed ended January at a lower elevation than where it began the month. But because of the time spent near the mountaintop, the monthly rate average was a bit higher than December's average.
January's trajectory of mortgage rates didn't track the headlines until the presidential inauguration on Jan. 20. The average rate on the 30-year mortgage fell that day and every day through the end of the month.
It mostly comes down to COVID-19
The economic data was overshadowed in a month filled with politics. The most important economic news arrived Jan. 8, with the December jobs report: The economy shed 140,000 jobs in the last month of 2020. The U.S. Bureau of Labor Statistics attributed the decline in employment to rising COVID-19 cases "and efforts to contain the pandemic." Riffing on the same theme late in the month, the Federal Reserve said the economy's path "will depend significantly on the course of the virus, including progress on vaccinations."
A small rebound in February
Unemployment remains high, a small but growing proportion of the population has been vaccinated against COVID-19, and the Federal Reserve continues to buy mortgage-backed securities to keep mortgage interest rates down. I predict that fixed mortgage rates will rebound in February, but not by much, rising less than a quarter of a percentage point. Rates are more likely to go up than down because an increased pace of vaccinations will give hope of an improving economy. We'll probably see job growth when the January employment report is released on Feb. 5.
Lower rates increase borrowing power
Interest rates fell in 2020, mostly in response to the COVID-19 recession. Mortgages were the most prominent participant in the lower-rates derby, falling almost one percentage point from January 2020 to January 2021, from an average of 3.86% to 2.92%.
That magnitude of a rate drop boosted the amount that home buyers could borrow to reach the same monthly payment. Someone buying in January 2021 could borrow almost $40,000 more with the same $1,500 principal-and-interest payment. That’s the difference between a mortgage of $319,600 and one of $359,500.
Principal & interest
Just for grins, let's compare today's borrowing power with that of 30 years ago. The average rate on the 30-year mortgage was 9.61% in the last week of January 1991, according to Freddie Mac. In those days, a buyer borrowing $176,700 could expect a $1,500 principal-and-interest payment.
If that 1991 buyer were a parent to a toddler back then, their grown-up millennial could borrow more than twice as much today with the same payment because mortgage rates have fallen more than six percentage points. That's fortunate, because house prices have more than doubled in 30 years. The median new home cost $127,000 in December 1990 and $355,900 in December 2020, according to the U.S. Census Bureau.
No stats are available on the price of avocado toast then and now.