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Fixed mortgage rates are back down to February lows after sharp decline in bond yields and removal of unpopular refinance fee

The 30-year fixed-rate average fell for the fourth week in a row and is now down to 2.78 percent. (Theodore Taylor III)

Plummeting bond yields and the dismissal of an unpopular refinance surcharge drove fixed mortgage rates down to February lows.

According to the latest data released Thursday by Freddie Mac, the 30-year fixed-rate average dropped to 2.78 percent with an average 0.7 point. (Points are fees paid to a lender equal to 1 percent of the loan amount. They are in addition to the interest rate.) It was 2.88 percent a week ago and 3.01 percent a year ago. The 30-year fixed average has fallen four weeks in a row.

Freddie Mac, a federally chartered mortgage investor, aggregates rates from about 80 lenders nationwide to come up with weekly national averages. It uses rates for high-quality borrowers with high credit scores and large down payments. Because of the criteria, these rates are not available to every borrower.

The survey is based on home purchase mortgages. Rates for refinances may be different.

The 15-year fixed-rate average decreased to 2.12 percent with an average 0.7 point. It was 2.22 percent a week ago and 2.54 percent a year ago. The five-year adjustable-rate average rose to 2.49 percent with an average 0.4 point. It was 2.47 percent a week ago and 3.09 percent a year ago.

“Mortgage rates fell sharply this week to their lowest level in months,” said Matthew Speakman, a Zillow economist. “Less than a year after initially announcing it, the organization that governs Fannie Mae and Freddie Mac said last week that they would remove a policy that places an additional 50 basis point fee on mortgages that are being refinanced,” he added. “The program was intended to protect mortgage lenders from pandemic-driven losses, but it ultimately made it more expensive for homeowners to refinance their home loan and artificially increased the average mortgage rate. Rates immediately fell sharply on the announcement, a move that was extended later in the week as mounting concerns about the delta variant of covid-19 and its potential impact on expected economic growth led many investors to sell off stocks and seek the safe haven of bonds.”

Borrowers wanting to refinance their mortgages received good news late last week. The Federal Housing Finance Agency announced that it was doing away with the adverse market refinance fee as of Aug. 1. The unpopular surcharge on refinances was announced last summer but not put in place until December. It was intended to offset covid-related losses suffered by Fannie Mae and Freddie Mac.

The adjustment, which applied only to Fannie Mae and Freddie Mac refinances, was 0.5 percent of the loan amount. That added about $1,500 to a $300,000 loan. According to FHFA data, 72 percent of refinances were acquired by Fannie Mae or Freddie Mac from 2018 through the first half of 2020.

“With less than 2 percent of GSE loans in forbearance and continued home price appreciation resulting in significant borrower equity, there is no need for the fee,” said Bob Broeksmit, president and chief executive of the Mortgage Bankers Association.

Greg McBride, chief financial analyst at, suggested that borrowers would be wise to call several lenders before refinancing.

“Lenders may use this as an opportunity to pad their own margins that have been squeezed by low rates and heated competition, so it is important for homeowners to seek out the lenders offering the best terms,” he said.

Monday’s dramatic stock market sell-off had investors fleeing to the safety of bonds, pushing prices up and yields down. The yield on the 10-year Treasury, which started the month at 1.48 percent, plummeted to 1.19 percent on Monday. It rebounded to 1.3 percent on Wednesday, back nearly to where it was on Friday.

“A declining stock market, foreign demand for U.S. debt and the need for portfolio rebalancing by institutional players have all come together to bid up the price of 10-year Treasurys,” said Ken H. Johnson, a real estate economist at Florida Atlantic University. “This increased demand has pushed down 10-year yields significantly to levels that no one anticipated.”, which puts out a weekly mortgage rate trend index, found that more than two-thirds of the experts it surveyed expect rates to go down in the coming week.

“Interest rates should ease lower with the lifting late last week of the adverse market fee and the drop in the 10-year Treasury after the Fed once again reinforced inflation as transitory,” said Gordon Miller, owner of Miller Lending Group. “New concerns about the covid variant globally have also raised concerns of continued growth being slower than expected, so a return to the lows for the year [is] quite possible in the weeks ahead.”

Meanwhile, mortgage applications slumped last week. According to the latest data from the Mortgage Bankers Association, the market composite index — a measure of total loan application volume — decreased 4 percent from a week earlier. The refinance index fell 3 percent, while the purchase index dropped 6 percent. The refinance share of mortgage activity accounted for 64.9 percent of applications.

“On a seasonally adjusted basis compared to the July 4th holiday week, mortgage applications were lower across the board, with purchase applications back to near their lowest levels since May 2020,” Joel Kan, an MBA economist, said in a statement. “Limited inventory and higher prices are keeping some prospective home buyers out of the market. Refinance activity fell over the week, but because rates have stayed relatively low, the pace of applications was close to its highest level since early May.”

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