Mortgage applications end lower as rates rose
Economic policy can be a double-edged sword, and that was abundantly clear with respect to mortgage rates at the end of the year.
Optimism over the tax bill resulted in higher interest rates, and that caused total mortgage application volume to drop percent in the last two weeks of The Mortgage Bankers Association included an adjustment for the Christmas holiday.
Applications to refinance a home loan, which are most rate-sensitive, fell 7 percent during the period but ended the year percent higher than at the end of Interest rates were also higher at the end of due to a spike following the presidential election.
After jumping 9 basis points during the third week of December, the average contract interest rate for year fixed-rate mortgages with conforming loan balances of $, or less remained unchanged for the last week of the year at percent, with points increasing to from , including the origination fee, for 80 percent loan-to-value ratio loans. That was the highest rate since April.
"With the passage of the tax reform bill, there were increased expectations of stronger economic growth, which pushed rates higher," said Joel Kan, an MBA economist.
Mortgage applications to purchase a home, which are less rate-sensitive week to week, increased 1 percent in the final two weeks of the year and ended 3 percent higher than at the end of
Overall, interest rates did not make any major moves during , and not much is expected for either. The Federal Reserve may continue to raise its lending rates, but mortgage rates, which loosely follow the yield on the year Treasury bond, are influenced by other factors, especially volatility in overseas markets. Refinance volume is unlikely to increase dramatically in , given that so many homeowners already refinanced at record-low rates.
As for homebuying, that will depend more on the supply of homes for sale than on the interest rate on any given day. Supply continues to fall as demand rises, leaving potential buyers to face increasingly high home prices.
Mortgage rate forecast for Q4 Inflation — and Fed’s response — will push rates up
Mortgage rates plumbed new depths in December and January, setting all-time lows south of 3 percent. Rates have bounced around since then, topping percent in March before dropping to 3 percent this summer.
Their trajectory for the rest of depends on a factor that hasnt played a prominent role in the mortgage market for decades inflation, and the Federal Reserves response to rising prices.
Thats according to Greg McBride, CFA, Bankrate chief financial analyst. With coronavirus vaccines widely available, optimism about the U.S. economy abounds. Yet so do fears about rising inflation. While the Fed insisted this summer that soaring prices were transitory and would fade away, that no longer seems an accurate reading.
Inflation is running hot and even the Fed acknowledges what we all felt in the pocketbook, that it may last longer than they thought, McBride says. Mortgage rates could tick a bit higher in the fourth quarter if inflation remains stubbornly high and the Fed is slow to begin tapering asset purchases, despite continued economic strength.
Housing economists say the growing optimism will push rates up, if slowly. The Mortgage Bankers Association, for instance, expects the average year fixed rate to reach percent by the end of Its forecast three months ago called for rates to hit percent in late In other words, accurately predicting rates aint easy, especially in a global pandemic.
Fewer refis, more purchases
With rates trending upward, the refinancing boom of is slowing dramatically, says Michael Fratantoni, chief economist at the Mortgage Bankers Association. He expects refi volume in the fourth quarter of to plunge to barely a third of the levels seen in the fourth quarter of
While mortgage rates will rise enough to discourage refinancing, theyll remain low enough to make homebuying attractive, Fratantoni says. He predicts record-breaking purchase mortgage volumes in , and then again in and
Were anticipating a very strong housing market, he says.
How the Federal Reserve affects rates
The Federal Reserve doesnt control mortgage rates, but the central bank does set the overall rate environment. The Fed slashed its federal funds rate when the coronavirus recession began in early , and it had signaled that it would keep rates low for years, which would translate to little upward pressure on mortgage rates. However, that calculus has changed in recent months.
The job market has improved, inflation is running hot and supply chain constraints are persisting, Fratantoni says. As a result, it is not surprising that the Fed will begin to remove accommodation.
At its Sept. 22 meeting, the Fed sped up its timetable for rate hikes. Most Fed members now expect an interest rate hike in which is faster than many market participants had previously anticipated, Fratantoni says.
While the federal funds rate doesnt directly affect mortgage rates, there is a strong correlation between the rate on year Treasury bonds and the year mortgage. That spread widened in the spring and summer.
The typical gap between the year government bond and the year fixed-rate mortgage is percentage points to 2 percentage points. During the scary early days of the COVID pandemic, that spread rose as high as percent. However, the gap has returned to normal.
Generally, an improving economy correlates to rising mortgage rates. Economists and investors think the U.S. economy will continue its uneven rebound. However, its unlikely that mortgage rates will soar, housing economists say.
Where Will Mortgage Rates Head Next Year?
Currently, the home financing climate continues to be favorable for prospective borrowers. But mortgage rates can change quickly, and your ability to lock in at an enticing fixed rate today may dwindle in the coming months.
Which begs the question: where will mortgage interest rates be in ?
To see where rates might move in the coming year, it’s constructive to ask experts for their rate predictions. Consulting with industry insiders can yield insights that may tell you when to pull the trigger on a rate lock and commit to a mortgage loan or refinance.
Forecasts varied among interviewed professionals. Many are looking at world events, the upcoming presidential election, and even unforeseen events to influence the direction of mortgage rates in the new year.Verify your new rate (Oct 12th, )
What Goes Down Must Come Up
To more accurately estimate where rates are headed in the coming year, it’s important to first review rate trends in thus far.
In early , rates hovered around the four percent mark and then fell about percent, hitting bottom in June and July. They have not risen much since then, partly due to fears about the economy.
In addition, the Fed delayed its plans to increase short-term rates because economic growth has not yet justified an increase.
Continued low interest rates are good news for would-be buyers planning to purchase soon. But a lot can change six or 12 months from now.
“I expect mortgage rates to increase approximately a quarter percent over the next six months and rise approximately a half percent, or 50 basis points, over the course of the next 12 months,” says Dan Smith, president of PrivatePlus Mortgage in Atlanta. He notes that one basis point is equivalent to 1/th of one percent.
“If gross domestic product moves above three percent, I would expect mortgage rates to rise more quickly, says Smith. You may also see fluctuations in mortgage rates based on the next president’s policies and the corresponding response from the financial markets.”
Watch The Fed And The Economy
Michael Goldrick, senior vice president and chief lending officer for PCSB Bank, headquartered in Yorktown Heights, N.Y., agrees that rates will head north slightly next year.
“Indications are that year and year mortgage loans will increase by to 25 basis points in the next six to 12 months, caused by further economic growth and stability. The historically low interest rate environment that currently exists makes the possibility of lower rates unlikely,” says Goldrick.
Whitney Fite, president of Atlanta-based Angel Oak Home Loans, also believes rates are due to tick up.
“Some market participants are expecting two to three Federal rate hikes between now and the end of The Fed continues to be the biggest buyer of mortgage-backed securities in the market. If they slow down on these purchases, the supply and demand relationship will invert, causing heavy volatility which could have more of a negative effect on mortgage rates than a Fed hike,” Fite says. “Therefore, I expect year rates to be in the low to mid 4 percent range and year rates to be in the high 3 percent range.”
The results of the November presidential election could also affect mortgage rates in more than anticipated.
“If the elected president reduces U.S. corporate tax rates or impacts policy to improve business, stocks are expected to rise. And if stocks rise, funds will be pulled out of the bond market, causing interest rates to rise,” says Julie Morris, associate broker/branch manager for Julie Morris Premier Team at HomeSmart in Scottsdale, Ariz.Verify your new rate (Oct 12th, )
Mortgage Rates: Replay Of ?
Not everyone believes that mortgage rates will increase, however. Longforecast.com predicts that mortgage rates will remain below percent in early
Kiplinger expects the Fed to increase short-term rates at its December meeting, but says, “Even with a rate hike, interest rates will likely stay low and fluctuate within a narrow range for some time to come. Only when inflation shows a stronger upward trend, or when the Fed commits to making progress on raising the federal funds rate to a more “normal” level of three percent, will rates show a sustained upward trend.
Michael Winks, Executive Vice President/chief lending officer for Grand Rapids, Mich.-headquartered Northpointe Bank, also anticipates rates remaining in their current range through – around % to % for the year fixed mortgage and % to % for the year fixed mortgage.
“The Fed and many economists have been predicting about a half percent increase in long-term mortgage rates each year going back to the Great Recession, and each year rates essentially have stayed within the same range moving lower due to the stagnant economy and continued uncertainty on alternative investment opportunities abroad,” says Winks.
Act Now Or Wait It Out?
Considering that most pros think mortgage rates will slightly increase or remain about the same without going lower over the next year, loan candidates who are serious about purchasing a home as well as existing homeowners eager to refinance need to ask themselves a serious question: Should I lock in now at a current low rate or take my chances down the road later in ?
“I think now is the time to act, whether you are looking to purchase or refinance,” Fite says. “I suggest even more urgency if you’re looking to purchase, since prices continue to rise in most areas. Even a small price increase of five percent, coupled with an interest rate that is one eighth to one half percent higher than they are today, can cost a home buyer thousands of dollars.”
Smith concurs that locking in sooner versus later makes sense, but only “if the pricing available allows you to own the home within your budget,” he says. “And if you can refinance today and lower your rate, with your lender paying the closing costs, do so.”
What Are Today’s Mortgage Rates?
Today’s mortgage rates are in a rock-bottom range. If you’re ready to buy a home or save money with a refinance, there’s no time like the present to capitalize on todays record-setting rates.Verify your new rate (Oct 12th, )
Haoyang Liu, David Lucca, Dean Parker, and Gabriela Rays-Wahba
During the pandemic, national home values and housing activity soared as mortgage rates declined to historic lows. Under the canonical “user cost” house price model, home values are held to be very sensitive to interest rates, especially at low interest rate levels. A calibration of this model can account for the house price boom with the observed decline in interest rates. But empirically, we find that home values are nowhere near as sensitive to interest rates as the user cost model predicts. This lower sensitivity is also found in prior economic research. Thus, the historical experience suggests that lower interest rates can only account for a tiny fraction of the pandemic house price boom. Instead, we find more scope for lower interest rates to explain the rise in housing activity, both sales and construction.
Since February , national home values have risen more than 15 percent across several house price indices. At the same time, existing home sales and building permits for new privately owned housing units have soared to levels last seen in , and Q4/Q4 real residential investment, as measured by the Bureau of Economic Analysis, grew about 16 percent in Thirty-year fixed rate mortgage rates dropped to an historic low of percent in December At 3 percent during the summer of , mortgage rates remain depressed and 50 basis points below February levels. How much of the housing boom can be explained with the lower level of interest rates?
Elasticity of House Prices to Mortgage Rates in Theory: The User Cost Model
Standard calibrations of the most popular theoretical framework of housing valuation—the user cost model—can in fact quantitatively explain the rise in house prices with the decline in interest rates. In its simplest form, the model postulates that the raw return on housing, including both the rent yield and growth of rent, should be equal to the sum of borrowing cost and property taxes, maintenance, and insurance (taking housing supply and rents as given):
where is the rent to price yield, g is the expected capital gain rate, ρ is the effective borrowing cost (mortgage rate after tax deduction), and τ accounts for property taxes, maintenance, and insurance.
From this formula, we can calculate how much home prices rise for every 1 percentage point decline in the mortgage rate, or the semi-elasticity of house prices to changes in mortgage rates, which we refer to as the “semi-elasticity.” The chart below illustrates the predicted semi-elasticity under a set of commonly used parameters from Himmelberg et al. () (marginal tax rate at 25 percent, property taxes, maintenance and insurance in total at 4 percent, growth of rent at percent). Importantly, the semi-elasticity rises as interest rates decline, meaning that house prices become particularly sensitive to interest rate changes in a low-rate environment. For example, the semi-elasticity is about 23 when mortgage rates are at 4 percent, but it increases to about 30 when mortgage rates are at 3 percent. These statistics suggest that a decline in the mortgage rate from percent to 3 percent would cause home prices to rise about 14 percent, which is just about as we observed. But as we show in the rest of the post, these predicted effects are much larger than our empirical estimates and those found in the economic literature.
User Cost Model Predicts High Sensitivity of House Prices to Mortgage Rates
Note: This graph plots the semi-elasticity of house prices to changes in the mortgage rate as a function of the mortgage rate, or how much home prices rise for every 1 percentage point decline in the mortgage rate.
Source: Authors calculations.
Elasticity of House Prices and Activity to Mortgage Rates in Practice: Empirical Evidence
We use a Jorda () linear projection framework and quarterly macroeconomic data between and to study the semi-elasticity of the FHFA house price index, building permits for single-family units, existing home sales, and residential investment (rescaled as a contribution to real GDP). Estimating the semi-elasticity to interest rates using macroeconomic data is challenging because movements in mortgage rates depend on the state of the economy, which is a confounding factor. Our first econometric specification (no contemporaneous controls) accounts for the economic state by including past realizations of the unemployment rate, the 1-year Treasury rate (as a proxy for monetary policy), and CPI inflation. In the second specification (contemporaneous controls), we include these controls contemporaneously, so that the estimated semi-elasticity only reflects changes in the residual mortgage rate component, which is driven by term premia for long-term rates and the mortgage basis (or spread). All specifications also include lags of each housing variable, so that the linear projections are equivalent to impulse responses from vector autoregressions commonly used in empirical macroeconomic analysis (Plagborg-Moller and Wolf ).
The chart below shows the response of each variable when excluding (orange) and including (blue) the contemporaneous controls after a 1 percentage point decline in the mortgage rate. We find significant effects, with the expected signs, and with stronger and more persistent responses when not including controls. The (maximum) semi-elasticity of house prices to mortgage rates is -2, with or without contemporaneous controls. This is less than a tenth as large as what is predicted by the user cost model. Housing activity is, instead, very sensitive to mortgage rates. After a 1 percentage point decline in mortgage rates, permits rise more than 10 percent, existing homes sales increase percent, and residential investment expressed as a contribution to real GDP increases percentage point ( percentage point with controls).
Mortage Rates Affect House Prices and Housing Activities
Notes: The above charts show impulse responses to a basis point (or 1 percentage point) decline in mortgage rates from linear projections (LPs). The LPs include lags of each dependent variable, mortgage rates, and a set of controls that include the unemployment rate, the 1-year Treasury rate (as proxy for monetary policy), and CPI inflation. The “contemporaneous controls” specification includes these controls up to quarter 0. Blue and orange bands are 90 percent confidence bands for the model, including contemporaneous controls and only lagged controls.
Sources: Authors’ calculations, based on data from Federal Reserve Board, Bureau of Labor Statistics, Freddie Mac, FHFA, Census Bureau, National Association of Realtors, and Bureau of Economic Analysis.
Elasticity of House Prices to Mortgage Rates in Practice: Prior Research
To what extent are our results specific to our statistical model? Prior research uses both macro and micro data to estimate the semi-elasticity of house prices to interest rates (in contrast, few studies look at the response of housing activity to interest rates). As shown in the table below, most empirical estimates from this literature suggest that house prices increase by less than 5 percent for every 1 percentage point decrease in (long-term) interest ratessubstantially less than implied by the user cost model and consistent with our results.
Estimated Effects of Interest Rates on House Prices
|Method||Home Price Appreciation After a 1 Percentage Point Drop in the Mortgage Rate|
|Del Negro and Otrok||U.S.||VAR|
|Goodhart and Hofmann||International||VAR|
|Jarocinski and Smets||U.S.||VAR||2|
|Sa, Towbin, and Wieladek,||International||VAR|
|Williams||International||Fixed exchange rate|
|DeFusco and Paciorek||U.S.||Bunching around CLL||[, 2]|
|Adelino, Schoar, and Severino||U.S.||Diff in diff around CLL||[, ]|
|Davis, Oliner, Peter, Pinto||U.S.||Cut in FHA insurance premium|
|Fuster and Zafar||U.S.||Consumer survey|
Notes: This table summarizes the literature on the relationship between house prices and interest rates. The “macro papers” panel summarizes five papers from the large literature using macroeconomic data. The second panel reviews four papers based on microeconomic data. The “U.S./International” column reports whether the study is based on U.S. or international data. The “Method” column reports the identification strategy. “CLL” stands for conforming loan limit. The last column reports the estimated effect on house prices after a 1 percentage point interest rate shock. For macro papers, these effects are 10 quarters after a 1 percentage point monetary policy shock. For the micro papers, the effects are for a 1 percentage point shock in the mortgage rate.
One difference between the macro and the micro literatures is in the measure of interest rate used. Macro papers tend to study monetary policy shocks or shocks to long term rates, either nominal or real. Micro studies often focus on mortgage rate shocks using arguably exogenous cutoffs at mortgage origination. For example, one such cutoff is the conforming loan limit (CLL). Most mortgages that are smaller than the CLL are guaranteed by Fannie Mae or Freddie Mac, enjoying lower interest rates than loans that are larger than the CLL, also known as jumbo loans. By looking at house prices around this exogenous cutoff and how they change when the CLL increases, Adelino, Schoar, and Severino () find a semi-elasticity between and
Rather than using mortgage and house price data, Fuster and Zafar () use the housing module of the New York Fed Survey of Consumer Expectations to elicit how much survey respondents are willing to pay for the same house in two hypothetical scenarios: when the mortgage rate is percent or percent. They find that even a 2-percentage point increase in the mortgage rate only lowers borrowers’ willingness to pay by 5 percent.
The semi-elasticity of house prices to interest rates implied by the theoretical user cost model suggests that the decline in mortgage rates during the pandemic can quantitatively account for the national house price boom. But our empirical estimates and prior studies suggest that the decline in mortgage rates can only explain low single-digit house price increases. Instead, we find that housing activity, both sales and construction, are very sensitive to interest rates.
Haoyang Liu is an economist in the Federal Reserve Bank of New York’s Research and Statistics Group.
David Lucca is a vice president in the Bank’s Research and Statistics Group.
Dean Parker is a senior research analyst in the Bank’s Research and Statistics Group.
Gabriela Rays-Wahba is a senior research analyst in the Bank’s Research and Statistics Group.
How to cite this post:
Haoyang Liu, David Lucca, Dean Parker, and Gabriela Rays-Wahba, “The Housing Boom and the Decline in Mortgage Rates,” Federal Reserve Bank of New York Liberty Street Economics, September 7, , https://libertystreeteconomics.newyorkfed.org//09/the-housing-boom-and-the-decline-in-mortgage-rates.
The views expressed in this post are those of the authors and do not necessarily reflect the position of the Federal Reserve Bank of New York or the Federal Reserve System. Any errors or omissions are the responsibility of the authors.
Expectations mortgage 2017 rate
Mortgage rate forecast for next week (October )
Mortgage rates should hold fairly steady next week.
With Congress having staved off the debt ceiling crisis — at least until December — one immediate threat to low mortgage rates has been averted.
In addition, the September jobs report released on Friday was far worse than expected. There are no guarantees, but that could push the Fed to delay its tapering plans.
In plain English, that means mortgage rates might stay lower (or at least rise more slowly) than expected.Find your lowest mortgage rate. Start here (Oct 12th, )
In this article (Skip to)
Will mortgage rates go down in October?
Mortgage rates have been volatile in October.
Rates initially spiked, with the average year rate moving above 3% for the first time in months. But, by the week of October 7, rates had moved back down to %.
So what’s going on here?
First off, higher rates are largely being driven by expectations that the Fed will ease off its economic stimulus starting in November. (This process is known as “tapering.”)
Tapering will almost certainly lead to higher rates. And if investors believe strongly enough that tapering is imminent, rates can rise on that expectation — even though the Fed hasn’t actually changed its policies yet.
Up until October 8, many economists and investors were all but certain the Fed would start easing off its mortgage stimulus after its November 3 meeting.
“After looking like almost a done deal, today’s jobs number has thrown expectations for tapering into disarray” Seema Shah, Chief Strategist, Principal Global Investor
But the September jobs report — released on October 8 — has some changing their tune.
“After looking like almost a done deal, today’s jobs number has thrown expectations for tapering into disarray,” Seema Shah, chief strategist at Principal Global Investors told CNBC.
“The Fed doesn’t seem to need much to convince it that tapering should begin imminently, but at just ,, jobs numbers are suggesting that the labor market is further from hitting the substantial progress goal than they expected.”
What does that mean for you?
Well, no one’s certain what the Federal Reserve will do. And if it moves forward with tapering plans in November, we could see rates spike.
But all the added uncertainty means rates are less likely to keep rising pre-Fed meeting. So buyers and homeowners might enjoy a couple more weeks of ultra-low rates.Get started shopping for mortgage rates (Oct 12th, )
Mortgage interest rates forecast next 90 days
Mortgage rates seem set to rise over the next 90 days. It’s likely the Fed will start easing off its economic stimulus before the end of the year, which could cause mortgage rates to go up in November or December.
On average, major housing authorities predict that year mortgage rates could go as high as % by the end of the year. Those would be the highest interest rates since April , when rates spiked to %.
Mortgage rate predictions for late
Housing experts and economists are split on how high mortgage rates will go before the end of the year.
Fannie Mae is still predicting average year rates as low as % through the end of , while Freddie Mac is forecasting an increase to %. The average agency prediction for year mortgage rates is %.
|Housing Authority||Yr Mortgage Rate Prediction (Q4 )|
|National Assoc. of Home Builders||%|
|Mortgage Bankers Association||%|
|National Association of Realtors||%|
The Federal Reserve and mortgage rates
The Federal Reserve doesn’t set mortgage rates. But it has a few levers with which it can influence them.
One is the fed funds rate — the Federal Reserve’s benchmark interest rate for banks to lend to one another.
Fixed mortgage rates are not based on the fed funds rate, but they can be influenced by it. That’s because this benchmark sets the tone for the overall interest rate market in the U.S.
The current fed funds rate is at 0% to %. And the Fed isn’t planning on raising its interest rates before at the very earliest.
But there’s another, more direct way the Federal Reserve can influence mortgage rates.
And that’s through its bond-buying program.
The Fed is getting ready to pull back on — and eventually stop — its mortgage stimulus program. When that happens, rates will almost inevitably go up for borrowers.
Since the start of the coronavirus pandemic, the Fed has been buying $40 billion of mortgage-backed securities (MBS) per month. MBS are a type of bond that largely determines mortgage rates.
By injecting billions of dollars into the MBS market each month, the Fed has been keeping mortgage interest rates artificially low.
This was a temporary measure to keep the economy propped up during Covid. And now that we’re seeing a steady economic recovery, the Fed is getting ready to pull back on — and eventually stop — its mortgage stimulus program.
When that happens, rates will almost inevitably go up for borrowers.
Many economists and investors believe the FOMC will announce a start date for ‘tapering’ this program after its meeting on November 3.
If those expectations become more certain, we could see rates start rising even before that November date.
So cautious borrowers may want to lock in a rate before we learn more about the Fed’s tapering plans.
Current mortgage interest rate trends
Mortgage rates decreased just slightly this week. The average year fixed rate inched down from % to % according to Freddie Mac’s weekly rate survey.
Per the survey, year fixed rates decreased from % to %. And the average rate for a 5/1 ARM rose from % to %.
year mortgage rate trends in
Source: Freddie Mac
Overall, mortgage rates are still close to their lowest levels in history.
The lowest year mortgage rate ever was just %, recorded by Freddie Mac in January So anyone who can lock in at or near today’s mortgage rates is getting a fantastic deal on their home loan.
Also keep in mind that average rates are just that — averages. “Prime” borrowers with great credit and large down payments often get lower interest rates than the ones shown here. And borrowers with lower credit or fewer assets may get higher rates.
Mortgage rate trends by loan type
Many mortgage shoppers don’t realize there are different types of rates in today’s mortgage market.
But this knowledge can help home buyers and refinancing households find the best value for their situation.
Following are 3-month mortgage rate trends for the most popular types of home loans: conventional, FHA, VA, and jumbo.
|Conforming Loan Rates||%||%||%|
|FHA Loan Rates||%||%||%|
|VA Loan Rates||%||%||%|
|Jumbo Loan Rates||%||%||%|
Source: Black Knight Originations Market Monitor Report
Which mortgage loan is best?
The best mortgage for you depends on your financial situation and your goals.
For instance, if you want to buy a high-priced home and you have great credit, a jumbo loan is your best bet. Jumbo mortgages allow loan amounts above conforming loan limits — which max out at $, in most parts of the U.S.
On the other hand, if youre a veteran or service member, a VA loan is almost always the right choice.
VA loans are backed by the U.S. Department of Veterans Affairs. They provide ultra-low rates and never charge private mortgage insurance (PMI). But you need an eligible service history to qualify.
Conforming loans and FHA loans (those backed by the Federal Housing Administration) are great low-down-payment options.
Conforming loans allow as little as 3% down with FICO scores starting at
FHA loans are even more lenient about credit; home buyers can often qualify with a score of or higher, and a less-than-perfect credit history might not disqualify you.
Finally, consider a USDA loan if you want to buy or refinance real estate in a rural area. USDA loans have below-market rates — similar to VA — and reduced mortgage insurance costs. The catch? You need to live in a rural area and have moderate or low income to be USDA-eligible.Find your lowest mortgage rate (Oct 12th, )
Mortgage rate strategies for October
Rates seem likely to rise in September and beyond, if only marginally. But there are still great opportunities to be had for home buyers and refinancing homeowners in
Here are just a few strategies to keep in mind if you’re mortgage shopping in the next few months.
Should I refinance now?
Refinance rates are still incredibly low. But economic movements in the next month could send rates on an upward trajectory. That means the low-rate refi window could be narrowing.
If you haven’t refinanced yet — but you’ve been considering it — now might be the time to get serious about deciding.
So, how do you know whether you should refinance now?
Mortgage advisor Arjun Dhingra shared a few tips on a recent episode of The Mortgage Reports podcast. He says now might be the time to refinance if:
- Your current mortgage rate is % or higher
- You need to lower your monthly mortgage payments
- You want to pay off your home sooner
- You need cash now and have enough equity to pull from
It might seem like ultra-low rates are the new norm. But, as Dhingra says, “inevitably, the music will stop.”
You can easily check your refinance eligibility and your new rate with a lender.Check your refinance eligibility and rates (Oct 12th, )
Earlier this year, Fannie Mae and Freddie Mac instituted a new rule that raised interest rates on investment property and second home loans.
But, as of mid-September, that rule has been put on hold.
That means home buyers can get cheaper financing on investment property and vacation home loans — at least for the time being. The rule is currently being reviewed, so there’s no guarantee it won’t eventually be put back in place.
With home values rising across the nation, it’s a smart time to consider buying an investment property. You could build home equity quickly while covering your mortgage payments via rental income.
Or you could cash-out home equity to purchase a vacation home.
U.S. homeowners currently have a record amount of equity and a cash-out refinance or home equity loan can put those dollars to work.
Save more by shopping around
Mortgage lenders are still offering near-record low rates to good borrowers. But there’s a catch.
You can’t just look for the lowest rate advertised online. Because the rates lenders advertise aren’t available to everyone.
Those offers typically represent borrowers with perfect credit, 20% down or more, and a sterling credit history.
Those criteria won’t apply to everyone. The rate you’re actually offered depends on:
- Your credit score and credit history
- Your personal finances
- Your down payment (if buying a home)
- Your home equity (if refinancing)
- Your loan-to-value ratio (LTV)
- Your debt-to-income ratio (DTI)
To figure out what rate a lender can offer you based on those factors, you have to fill out a loan application. Lenders will check your credit and verify your income and debts, then give you a ‘real’ rate quote based on your financial situation.
You should get of these quotes at minimum. Then compare them to find the best offer.
Look for the lowest rate, but also pay attention to your annual percentage rate (APR), estimated closing costs, and ‘discount points’ — extra fees charged upfront to lower your rate.
This might sound like a lot of work. But you can shop for mortgage rates in under a day if you put your mind to it. And shaving just a few basis points off your rate can save you thousands.Compare mortgage and refinance rates. Start here (Oct 12th, )
Mortgage interest rate FAQ
Current mortgage rates are averaging percent for a year fixed-rate loan, percent for a year fixed-rate loan, and percent for a 5/1 adjustable-rate mortgage, according to Freddie Mac’s latest weekly rate survey. Your own rate could be higher or lower than average depending on your credit score, down payment, and the lender you choose to work with, among other factors.
Mortgage rates should hold steady next week (October , ). Although rates seemed set to keep rising, the poor September jobs report has generated more uncertainty about how our economic recovery is progressing. Now, we’re waiting on the November 3 Fed meeting to learn more about where rates are headed.
Mortgage rates are not expected to drop by any significant amount in the remainder of However, if the Covid cases continue to worsen due to the Delta variant, this could drag down the U.S.’s economic recovery. Any significant slowdown could push mortgage rates lower, or at least help to keep them in the sub-3 percent range throughout the fall.
Yes, mortgage rates are likely to increase in and next year. Most economists and housing authorities are predicting rates in the low- to mid-3 percent range by the end of the year, rather than in the high 2s where they’ve been recently. However, due to economic uncertainty caused by the Covid Delta variant, significant rate increases may not come until the end of the year.
Freddie Mac is still citing average year rates below 3 percent. But remember that rates vary a lot by borrower. Those with perfect credit and large down payments may see lower rates in the 2 percent range, while poor-credit borrowers and those with non-QM loans might see interest rates closer to 4 percent. You’ll need to get pre-approved for a mortgage to know your exact rate.
In a normal market, inflation leads to higher mortgage rates. Fixed-rate assets like mortgage-backed securities (MBS) have to offer bigger returns to entice investors when inflation is rising. However, we’re not in a normal market. The Fed believes current inflation rates will be temporary, which is helping keep mortgage rates low. And economic concerns over coronavirus are pushing rates down as well. So they haven’t responded to inflationary pressures as usual.
At the time of this writing, the lowest year mortgage rate ever was percent. That’s according to Freddie Mac’s Primary Mortgage Market Survey, the most widely-used benchmark for current mortgage interest rates.
Any mortgage rate in the low- to mid-3 percent range is very good by historical standards. Looking back just one year, mortgage rates started at nearly 4 percent. And they were above percent in early So today’s rates are excellent by comparison.
That depends on your situation. It’s a good time to refinance if your current mortgage rate is above market rates and you could lower your monthly mortgage payment. It might also be good to refinance if you can switch from an adjustable-rate mortgage to a low fixed-rate mortgage; refinance to get rid of FHA mortgage insurance; or switch to a short-term or year mortgage to pay off your loan early.
It’s often worth refinancing for 1 percentage point, as this can yield significant savings on your mortgage payments and total interest payments. Just make sure your refinance savings justify your closing costs. You can use a mortgage calculator or speak with a loan officer to crunch the numbers.
Based on what we know today, it seems likely mortgage rates could be higher in 5 years than they are now. Current mortgage rates are near their lowest levels ever, and seem more likely to rise than to drop further. However, any number of unexpected events could change the course of interest rates in the next few years. For instance, no one predicted the Covid pandemic would push mortgage rates to new record lows in and
Start by choosing a list of mortgage lenders that you’re interested in. Look for lenders with low advertised rates, great customer service scores, and recommendations from friends, family, or a real estate agent. Then get pre-approved by those lenders to see what rates and fees they can offer you. Compare your offers (‘Loan Estimates’) to find the best overall deal for the loan type you want.
Refinancers: If you’ve compared loan offers and you’re confident you’ve found the best deal, today is a great time to lock a mortgage refinance rate. Home buyers: If you have a signed purchase agreement and loan approval in hand, today is also a great time for you to find a low rate and lock in.
What are today’s mortgage rates?
Low mortgage rates are still available. You can get a rate quote within minutes with just a few simple steps to start.
Verify your new rate (Oct 12th, )
1Todays mortgage rates based on a daily survey of select lending partners of The Mortgage Reports. Interest rates shown here assume a credit score of See our full loan assumptions here.
Expert Poll: Mortgage Rate Trend Predictions For Oct. ,
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Interest Rates: Long-Expected Fed Taper Coming in November
Short-term consumer loan rates such as home equity lines of credit will stay where they are for most of next year. These only rise when the Fed raises its rates.
The current surge in COVID infections caused by the Delta variant is keeping long-term interest rates lower than they would be otherwise, because of concerns about the effect on the economy. But the infection surge is starting to diminish, so rates should drift upward again as the economy rebounds. They have already edged up a bit.
Expect the year yield to rise to at least % by early next year. The rise in the year rate will also push up mortgage rates, from % currently to % by early next year. Rates on long-term car loans should also bump up.
Yet, investors in long-term bonds do not appear very concerned for now about inflation or government debt. As the economy has strengthened, shortages have developed, pushing up prices of cars, appliances, car rentals, housing, etc. While shortages will likely ease over time, government spending on infrastructure and other priorities should keep the economy running hot and apply upward pressure on yields on year Treasury notes. U.S. government debt will rise to % of GDP this year, and % next year. This is uncharted territory: The highest the national debt has ever been was % of GDP right after World War II.
Corporate high-yield bond rates are also staying low. CCC-rated bond yields are at %, just slightly above their recent low. AAA bonds are yielding % and BBB bonds, %.
Source: Federal Reserve Open Market Committee