Mortgage Rates in 2021... Will they remain low?

Dated: December 29 2020

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In 2020, homebuyers were able to enjoy lower mortgage rates that assisted them when buying homes. A lot of families that didn’t lose their income or jobs due to the coronavirus refinanced to take advantage of the low-interest rates that fell below 3% for the first time.

The rates fell to record lows 12 times in 2020, and potential buyers that may be waiting for their opportunity are curious if rates will remain low.

Rates and the Hopes of the Pandemic Ending

Rates in November 2020 remain lower than a year prior, but mortgage rates did rise on news that numerous vaccines have made it through clinical trials with high effective rates of over 90%.

It's projected that over the next four quarters, or through 2021, rates will slowly start to increase.

As the pandemic subsides and people go back to work, rates will go back up, but they are still likely to remain low. Numerous forecasts have been released showing the following expectations through Q3 2021:

  •          Freddie Mac expects rates to remain at 3.0%
  •          Fannie Mae expects rates to fall to 2.8% in 2021
  •          MBA and NAR project rates will rise twice and hit 3.2%

COVID-19 and economic recovery will play a major role in the mortgage industry going into the end of 2021. If vaccines do not help stores reopen and slow the spread of the virus, rates may remain low.

MBA released their 2021 forecast in October with projections that 30-year mortgage rates may hit 3.3% by the end of next year.

Visualizing What These Rate Increases Mean to You

If you’re considering buying a home or refinancing, now is the ideal time as rates have never been this low. Receiving loans with 3% rates or less is likely as good as it’s going to get for the foreseeable future. reports that today’s 30-year mortgage rates are 2.814%. If you took out a mortgage today, your principal payments would be $823 per month, with the total cost of the mortgage being $296,380 over the lifetime of the loan.

MBA’s and NAR’s 3.2% mortgage rate forecasts would result in:

  •         Monthly payments of $865 - $42 more per month than 2.814% rates
  •         Total loan value of $311,376 – just under $15,000 more in lifetime payments

While $40 more a month may not seem too drastic for a lot of potential buyers, it does add up over the lifetime of the loan. Rates for 20- and 15-year loans are even lower than the 30-year rates outlined above.

The MBA notes that low-interest rates have driven up demand, but inventory levels remain a major concern. A lot of homeowners refinanced and also remodeled their home, leaving current inventory levels at a 3-month supply.

Housing prices are experiencing upward pressure as inventory remains slow growing. Prices are expected to experience a 4% to 5% increase in the year ahead. While mortgage rates are expected to rise in 2021, rates remain at 3.3% or lower, according to forecasts.

An additional stimulus package may spur faster economic recovery, which could result in rates increasing faster in the first or second quarter of the year.

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