Mortgage rates today: Tuesday, March 2, 2021
On Tuesday, March 2, 2021, the average interest rate on a 30-year fixed-rate mortgage rose nine basis points to 3.13% APR. The average rate on a 15-year fixed-rate mortgage rose three basis points to 2.366% APR and the average rate on a 5/1 adjustable-rate mortgage fell 17 basis points to 2.759% APR, according to rates provided to NerdWallet by Zillow. The 30-year fixed-rate mortgage is 15 basis points higher than one week ago and 24 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
For the week ending Feb. 26, fixed mortgage rates went up sharply for the second week in a row.
The 30-year fixed-rate mortgage averaged 3.04% APR, up 13 basis points from the previous week's average.
The 15-year fixed-rate mortgage averaged 2.38% APR, up eight basis points from the previous week's average.
The five-year adjustable-rate mortgage averaged 2.97% APR, up one basis point from the previous week's average.
In just two weeks, the weekly average on the 30-year mortgage has gone up one-quarter of a percentage point. On a $250,000 loan, the 0.25% rate increase translates into $33.50 more a month in principal and interest.
The rapid increase knocked some homeowners out of contention to refinance their mortgages because they would no longer save enough money on their monthly payments to justify the closing costs. It also may cause a few home buyers to stretch to afford homes they’d made offers on but hadn't yet locked an interest rate.
The rate rise can't be traced to just one motive. Even though the inflation rate is well below 2% despite the Federal Reserve's yearslong efforts to push it higher, bond traders seem to be worried that overall prices will surge. The economy remains in recession, with a 6.3% unemployment rate. This isn't an economic environment in which you would expect interest rates to rise abruptly. Yet financial markets seem to expect rapid economic growth.
March mortgage rates forecast
Mortgage rates leaped higher in the second half of February and probably will continue rising in March.
The average rate on the 30-year fixed-rate mortgage went up 0.43 of a percentage point from the end of January (2.73%) to the end of February (3.16%). February's jump in rates was one of the most significant in the last three years because nearly 5 million homeowners lost their incentive to refinance.
About 18.1 million homeowners could have cut their mortgage rates by at least 0.75% by refinancing when the 30-year mortgage was at 2.75%, as it was at the end of January. That's according to Black Knight, a mortgage analytics company. But when the 30-year mortgage rose to around 3.125% at the end of February, only about 13.3 million homeowners had the same incentive to refinance. A lot of potential refinancers remain, but their ranks shrank by around 4.8 million in February.
Why rates went up
The surge in mortgage rates happened in the second half of February, as the odds improved for an economic recovery. A $1.9 trillion coronavirus relief package snailed its way through Congress, and vaccine production continued to ramp up, even as winter storms caused distribution delays across much of the country.
Mortgage rates move up and down in concert with bond yields. You could make the case that the bond market jumped the gun in February, as yields rose sharply even though the relief package hadn't passed yet and a little more than one-eighth of Americans had been vaccinated against the coronavirus.
The inflation rate is low, the unemployment rate is high and the Federal Reserve isn't in a hurry to raise short-term rates. Given that combination of factors, you wouldn't expect significant upward movement in bond yields and mortgage rates. But it happened anyway.
What March looks like to me
I predict that fixed mortgage rates will continue to climb in March, but more slowly than they surged in the second half of February. Most of the increase in rates will happen in the first half of March, in the run-up to the passage of the COVID-19 relief bill.
In February, I predicted that mortgage rates would rise, but by less than 0.25%. I was right about them going up, but didn’t expect a jump of 0.43%. Financial markets reacted more positively than I expected to robust vaccine distribution and the progress of legislation for COVID-19 relief.
$1,500 a month doesn't go as far
February's move-up in mortgage rates chipped away at the amount home buyers could borrow to reach the same monthly payment compared with a month ago. The average loan amount was $344,800 and the average rate on the 30-year was 3.08% last week, according to the Mortgage Bankers Association. That yields a principal-and-interest payment of $1,469 (excluding taxes and insurance). For someone targeting a monthly P&I of $1,500, February's rate increase reduced borrowing power by around $17,000.