How Low for How Long? Mortgage Rates May Surprise in 2021

The economy’s historically low interest rate period experienced last year could become a perpetual trend in 2021, which means the average interest rate on a mortgage may remain low. If true, it’s an enormous benefit for those looking to purchase or refinance.

This could happen for three reasons:

First, the U.S. economy has its thumb on rates — for now. Movement in the global investment markets due to the 2020 Pandemic Recession means the Federal Reserve has promised to do all it can to make sure long-term interest rates on products such as mortgages, will stay as low as possible for the foreseeable future. This is the central bank’s job as the economy continues to slowly recover.

Second, financial markets still want safe investments to pour money into (mortgage bonds), and there’s been no current interruption to the U.S. government’s ownership of Fannie Mae and Freddie Mac. Since stability is important, these events help mortgage rates stay lower for the time being.

Third, Fannie Mae and Freddie Mac believe interest rates most likely won’t increase that much over the next five to 10 months. Besides doing their own research, Fannie and Freddie also survey lenders working in the mortgage field. The average mortgage rate will probably end up at around 2.9 percent for all 12 months of 2021, which isn’t that much higher than 2020 (2.7 percent).

You can see Fannie’s forecast here and Freddie’s here. While you shouldn’t put too much stock in these forecasts, they are historically accurate most of the time. Just don’t assume your mortgage rate will be the same as the average for the industry; it could be higher or lower depending on the borrower boat you’re in.

Looking beyond these three reasons, remember that mortgage rates don’t fluctuate too much on a daily basis. Relative to the average homebuyer’s schedule and time horizon, rates make big moves up or down over many weeks (or several months). You can assess which way mortgage rates could go, but don’t get overly scholarly. All you have to do is track the yield on a 10-year U.S. Treasury bond. If the “10-year treasury” rate goes up or down, mortgage rates will usually rise or fall (not a perfect relationship, just a generic correlation). Daily U.S. Treasury rates on 10-year bonds can be seen here.

Also know that mortgage rates can slightly rise before falling significantly and vice versa. Don’t pursue the perfect rate you want. Just stay informed on why rates move higher or lower over time, as well as the future signals they are giving off.

It’s never too soon to discover what today’s lower mortgage rates could do for your monthly budget by refinancing. Talk to your credit union for more information. Get pre-qualified for a competitive mortgage rate so you can make your move soon!


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