Mortgage rates are rising fast. Have you missed the boat on refinancing?

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Since the start of the coronavirus pandemic, mortgage rates have reached record low after record low. But now the trend appears to be reversing as average interest rates on most mortgage products rise, with Freddie Mac reporting this week the highest 30-year interest rates since August.

The 10-year Treasury, which is closely tied to mortgage rates, shot up this week to its highest level in more than a year as the economy continues to recover from pandemic shutdowns. With rates shooting up, here’s what you need to know about refinancing, and how to take this opportunity to save if you haven’t already.

Is it too late to refinance my mortgage?

No. But it may be soon.

On average, 30-year fixed mortgage interest rates have been at or below 3 percent for nearly a year, but experts never expected rates like that to remain around forever.

“If you’ve been slow to refinance your mortgage, this is your wake-up call,” says Greg McBride, Bankrate’s chief financial analyst. “Rates have moved up but are still low enough to generate meaningful savings through refinancing. But do it now.”

As rates climb higher, a shrinking number of people will stand to benefit from a mortgage refinance. Last year, Bankrate reported that nearly 20 million American homeowners could have saved by refinancing and chose not to. If you were among those masses, you still have a bit of time to lower your payments and save some cash.

“Mortgage rates have climbed higher over the past two weeks to the highest levels since last August. But mortgage rates are still more than one-half percentage point below year ago levels – and they were low even then,” McBride says. “Current levels of mortgage rates are still much lower than anything seen prior to 2020.”

Where are mortgage rates headed?

The short answer is up. After an extended period of all-time low rates, it’s unlikely they’ll sink significantly further. How quickly and steadily mortgage rates rise again will depend largely on how the rest of the economy recovers, so it’s likely to be dependent — at least in part — on COVID stimulus, vaccinations and other factors.

Experts have said that it may take months or even years for rates to reach their pre-pandemic levels, but as they rise, more and more borrowers will be shut out of mortgage savings. If you opened a new mortgage or refinanced in 2020, you’ll be among the first to see rising rates erase your ability to save. If you have an older loan, you may still be able to cut your payments as rates go up, but your savings will likely be smaller the longer you wait.

Many mortgage experts say that you need to save at least half a point in interest in order to make a refi worthwhile. As market rates approach the interest on your current loan, your breakeven timeline for your closing costs will stretch and your refinance benefits will shrink.

How soon do mortgage rates follow after Treasurys jump?

The Federal Reserve does not directly dictate mortgage rates, but the interest paid on its products, like 10-year Treasury bonds, plays a big role in the mortgage market. Essentially, as interest rates on Treasurys rise, they lift the cost of borrowing money for banks and other financial institutions, and they pass those extra costs on to you in the form of higher interest on the loans they extend.

On Thursday, the 10-year Treasury rate jumped to 1.54 percent, which was a major factor in rising mortgage rates.

As Treasury rates rise, mortgage rates follow “almost immediately,” says McBride. “Treasury yields are up nearly one-half percentage point since the beginning of the year, but mortgage rates are up only half as much. Last year mortgage rates didn’t fall as fast as benchmark Treasury yields, so lenders had some additional margin to work with. Now those margins are narrowing close to historic norms.”

What does this mean for the housing market?

Housing supply is still low, which has been driving up prices even as low mortgage rates have fueled a real estate boom over the last year. As rates start to rise again, housing affordability will decrease since that low supply is likely to keep prices up anyway. The result will be a minor slowdown in the real estate market, but it’s likely to remain a relative economic bright spot for a while nonetheless.

“Higher mortgage rates mean the red-hot housing market might downshift to merely sizzling. The lack of homes available for sale is a much bigger impediment than a quarter percentage point rise from record lows in mortgage rates,” according to McBride.

That’s good news for homeowners, especially those who may be looking to do a cash-out refinance, because higher home prices mean more home equity.

Bottom line

You haven’t missed the boat on saving through a mortgage refi if you haven’t done so yet, but you may want to get your application submitted before rates keep going up. The higher they go, the less you stand to save. That said, by historical standards, rates are still very attractive and are likely to remain so for many months to come.

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Written by
Zach Wichter
Mortgage reporter
Zach Wichter is a mortgage reporter at Bankrate. He previously worked on the Business desk at The New York Times where he won a Loeb Award for breaking news, and covered aviation for The Points Guy.
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