Mortgage Rate Predictions From The Experts
Will mortgage rates go up or down in April 2021? That depends on many factors — the economy here and around the world, progress with coronavirus vaccination and opening up in the US, the traditional homebuying season creating demand for home loans, and Federal Reserve policy all impact mortgage rates. This article contains mortgage rate predictions for the next 30 and 90 days from leading experts.
Where Are Mortgage Rates Going in April 2021?
The chart below shows what mortgage rates have done over the last year. In 2021, mortgage rates have bumped up and down but the trend overall has been upward. In fact, mortgage rates in March 2021 have already exceeded some 2021 year-end predictions already. If mortgage rates follow their current trend, we see average 30-year fixed rates hitting 3.25% in April — they are currently hovering between 3.05% and 3.15%.
Understand that these are average rates for the most highly-qualified applicants; most borrowers pay higher rates than the rock-bottom rates lenders advertise. The best mortgage rate for you is the least-expensive combination of fees and interest rate. That depends on your credit rating, loan-to-value, and the number of years in which you plan to keep your loan.
Mortgage Rate Predictions For 90 Days
If mortgage rates continue on their current path, we’re likely to see significant increases in the second quarter of 2021. If the US coronavirus vaccine rollout continues to progress the way it has recently, President Biden and Dr. Fauci have stated that we’ll see more normalcy this summer and be able to gather in small groups for Independence Day on July 4th.
As the economy opens up this summer, the economy is likely to heat up and take interest rates with it. According to Freddie Mac, 30-year fixed mortgage rates averaged 3.47% in February 2020 before COVID-19 put the US economy on lockdown and have been as high as 3.88% in the last 12 months according to Mortgage News Daily.
It’s entirely reasonable for mortgage rates to return to those highs once the economy is on firmer footing and consumers unleash their pent-up demand on the real estate, travel, automotive, restaurant, and other industries. A return to rates near the 3.88% level by the end of June is not unlikely.
Mortgage Rate Predictions for 2021
Many forecasters adjusted their 2021 mortgage rate predictions in recent weeks. Here are a few from the experts.
Mortgage Bankers Association (MBA)
On March 22, 2021, the MBA predicted that 30-year mortgage rates will climb to 3.6% by year’s end.
Here is the MBA’s latest mortgage rate forecast by quarter:
- Q1, 2021: (2.9%)
- Q2, 2021: (3.2%)
- Q3, 2021: (3.4%)
- Q4, 2021: (3.6%)
Freddie Mac analysts are much more optimistic, guessing that 30-year fixed mortgage rates will hit 2.9% by year-end. It’s worth noting that Freddie’s weekly rate survey as of this writing is already at 3.17%.
Fannie Mae’s quarterly forecast is as follows:
- Q1, 2021: (2.9%)
- Q2, 2021: (3.1%)
- Q3, 2021: (3.1%)
- Q4, 2021: (3.2%)
This is likely to miss as current 30-year average rates are already higher than forecast for Q2 and Q3 and the economy hasn’t gotten started yet.
National Association of Realtors (NAR)
The NAR is fairly optimistic, expecting mortgage rates to hit 3.10% by year-end. Most trackers who that we’ve already pushed through that level.
National Association of Home Builders (NAHB)
The NAHB predicts an average mortgage rate of 3.25% by year-end.
Wells Fargo Bank
Wells Fargo analysts believe that mortgage rates will hit 3.55% by the end of 2021.
Gustan Cho Associates
Looking at the above expert mortgage rate predictions, and adjusting for current economic conditions, we calculate that average 30-year fix-rate mortgages will hit 3.45% by year-end.
Mortgage Rates: What the Fed Said
The Federal Reserve does not “set” mortgage rates when its Federal Open Market Committee (FOMC) meets each month. Instead, the Fed attempts to control inflation by increasing or decreasing its Federal Funds rate — the rate it charges for overnight loans to banking institutions.
When the FOMC is concerned about economic weakness, it keeps interest rates low to encourage buying, financing, and hiring. When the economy is doing well and heating up, the Fed raises its target interest rate to slow economic activity and keep inflation under control. Investors, lenders, and borrowers pay close attention to the Fed because its announcements often provide clues about the timing and extent of future interest rate increases.
Following their most recent meeting, the Federal Reserve promised to keep interest rates low. One way it keeps mortgage rates down is by purchasing long-term Treasury bills and mortgage-backed securities (MBS). Currently, the Fed buys $80b in Treasuries and $40b in MBS each month.
The FOMC also promised to keep the Federal Funds rate near 0%, which has nothing to do with mortgage rates but does affect short-term borrowing, the Prime Rate, and some home equity loans.
Keeping Federal Funds rate low can, in fact, push mortgage rates up. That’s because cheaper borrowing leads to more spending, and more spending leads to inflation, and concerns about possible inflation lead to higher interest rates. Investors who believe that inflation is coming start requiring higher rates of return or they won’t buy bonds or MBS. No one wants to be earning 2.5% in a 3.5% world.
That’s what’s happening now and there is no reason to believe that it won’t continue into the summer.
What Factors Drive Mortgage Rates?
There are several factors that determine what mortgage rate you’ll be offered. Here are the ones you can control:
- Credit rating — higher credit scores mean lower mortgage rates.
- Loan-to-value (LTV) — higher LTV ratios come with higher interest rates.
- Loan amount — In general, large “jumbo” mortgages have higher interest rates than smaller “conforming” mortgages.
- Mortgage program — loans with shorter fixed-rate periods like 15-year fixed loans or 5/1 hybrid ARMs come with lower mortgage rates than 30-year fixed loans.
- Property type — riskier types of property like high-rise condos, manufactured homes and mixed-use developments can cost more to finance.
- Property use — primary residences are the cheapest to finance, while second homes and investment properties cost more.
And here are the factors over which you have no control:
- The global economy — events like a pandemic, terrorist attack, war, or a country going bankrupt can make investors uneasy and drive interest rates lower. That’s because when things get shaky, investors just want to put their money somewhere safe and don’t care much about how much they earn. Higher demand for safe things like Treasuries and MBS pushes their prices up and their rates down.
- Lender policy — mortgage lenders are private businesses and they set their rates according to how much they want to earn per loan, how much capacity they have, and how much risk they are willing to take. You can’t change a lender’s policy but you can compare offers from more than one company to make sure you’re getting a fair deal.
- The Fed — as noted above, the Fed’s actions can cool or heat the economy. And when the economy heats, mortgage rates rise. When it cools, mortgage rates fall.
How to Get a Lower Mortgage Rate
The sooner you begin preparing to buy a home and apply for a mortgage, the more chance you have to lower your mortgage rate.
First, check your credit report and score. If your report contains errors that are dragging your score down, contact the three major credit bureaus to have them removed. Your lender may be able to help you do with a ‘rapid re-scoring” service.
Adding even one point to your score could make a difference. Most lenders price their loans in tiers — applicants with FICOs from 620 – 639 pay a higher rate than those with scores of 640-659, and so on. Moving from a 679 FICO to a 680 FICO can save you thousands of dollars.
Increasing your down payment can also lower your mortgage rate. Putting 5% down instead of 3%, or 10% instead of 5% can make a real difference in your payment. Try applying for down payment assistance to increase your down payment. You can also free up money for a larger down payment by negotiating with the seller to pay your closing costs. That can save you a lot more money than negotiating a lower sales price.
You can also get a lower rate by paying discount points to “buy down” your rate. That’s not generally a great idea unless you expect to keep your home for many years.
Choosing a shorter fixed loan term can get you a lower rate — ask your lender about the rate for a 15-year fixed loan or a 5/1 hybrid ARM.
Check with your loan officer. Often, he or she has access to programs from many lenders and can find a program that’s cheaper for you based on your needs.