Held in place by opposing forces, mortgage rates take a pause

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As of Aug. 1, borrowers refinancing their mortgages will no longer have to pay the adverse market refinance fee. Adobe Stock

Mortgage rates showed little change this week, waiting for the outcome of the Federal Reserve meeting.

According to the latest data Freddie Mac released Thursday, the 30-year fixed-rate average ticked up to 2.8% with an average 0.7 point. (Points are fees paid to a lender equal to 1% of the loan amount. They are in addition to the interest rate.) It was 2.78% a week ago and 2.99% a year ago. The 30-year fixed average has remained below 3% for the past five weeks.

Freddie Mac, the federally chartered mortgage investor, aggregates rates from around 80 lenders across the country to come up with weekly national averages. It uses rates for high-quality borrowers with strong 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. As of Aug. 1, borrowers refinancing their mortgages will no longer have to pay the adverse market refinance fee. The fee, which was imposed on mortgages sold to Fannie Mae and Freddie Mac, added about $1,500 to a $300,000 loan. The surcharge was intended to offset COVID-related losses.

The 15-year fixed-rate average slipped to 2.1% with an average 0.7 point. It was 2.12% a week ago and 2.51% a year ago. The average five-year adjustable rate fell to 2.45% with an average 0.3 point. It was 2.49% a week ago and 2.94% a year ago.

‘‘Mortgage rates often stand still in the week leading up to Federal Reserve monetary policy meetings, waiting to hear what the Fed has to say,’’ said Holden Lewis, home and mortgage specialist at NerdWallet. ‘‘In addition, two forces canceled each other out: high inflation and the spread of COVID’s delta variant. The former pushes upward on mortgage rates, while the latter pulls them downward.’’

The Federal Reserve wrapped up its meeting Wednesday, leaving its benchmark interest rate near zero and continuing its bond-buying program. The Fed lowered the federal funds rate to near zero in March 2020 and has been purchasing $80 billion in Treasurys and $40 billion in mortgage-backed securities each month since then. The central bank’s bond purchases have helped keep mortgage rates low.

Fed officials have indicated they will not reduce bond purchases until they see progress toward low unemployment and stable inflation. A statement put out after the meeting noted that ‘‘progress’’ had been made toward those two goals, which could signal a change in policy is coming. It is expected the Fed will taper its bond-buying program before it raises interest rates.

Fed Chair Jerome H. Powell said after the meeting that officials had not decided on when and how to slow its bond purchases but that there were a ‘‘range of views’’ on the subject.

‘‘The number one thing to watch is the Fed’s buying of bond purchases,’’ said Bill Dallas, president of Finance of America Mortgage. ‘‘The Fed has been extraordinarily accommodating with interest rates, but if it reduces its bond purchases then an uptick in interest rates should be expected.’’

The bond market continues to bewilder. Despite rising inflation, which should cause investors to sell bonds, demand remains strong. The yield on the 10-year Treasury has remained at or below 1.3% since the middle of the month, closing at 1.26% on Wednesday.

‘‘Ten-year Treasurys continue to decline steadily,’’ said Ken H. Johnson, a real estate economist at Florida Atlantic University. ‘‘Long-term mortgage rates have followed. Worldwide economic pessimism brought on by concerns over the delta variant is sending large amounts of capital to the sidelines.’’, which puts out a weekly mortgage rate trend index, found that half the experts it surveyed expect rates will go down in the coming week.

‘‘Rates will be driven not by the Fed, not by actual inflation, not by jobs, but by anxiety as to how long the upward trend in COVID cases will last,’’ said Dick Lepre, senior loan officer at RPM Mortgage. ‘‘If this leads to another round of shutdowns, we may have another recession. Even if COVID cases subside and shutdowns are minimal, anxiety will persist. Anxiety drives money to fixed-income securities.’’

Meanwhile, mortgage applications picked up last week. According to the latest data from the Mortgage Bankers Association, the market composite index — a measure of total loan application volume — increased 5.7% from a week earlier. The refinance index grew 9%, while the purchase index dropped 2% to its lowest level since May 2020. The refinance share of mortgage activity accounted for 67.2% of applications.

‘‘Housing demand remains robust throughout the country this summer, but steep home-price growth and too few homes for sale continue to hold back prospective buyers,’’ said Bob Broeksmit, MBA president and CEO. ‘‘Applications to buy a home have now fallen on an annual basis for three straight months.’’

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