Will Mortgage Rates Go Up in 2021?
If you’re thinking about buying property in 2021, one of the most important things to consider is the current mortgage rate. While mortgage rates are only one determining factor in how you reach your property goals, they do have a direct impact on your monthly and yearly finances.
If you can secure a low rate on a fixed mortgage, you’ll pay less interest throughout your loan term and you’ll build equity in your home faster.
Here’s what you need to know about mortgage rates in 2021.
Mortgage Rates in 2021
Mortgage rates aren’t directly controlled by a single entity (like interest rates with the Federal Reserve), so predictions about them aren’t guaranteed. Currently, most experts predict that mortgage rates will either stay low in 2021 or increase slightly.
For example, according to National Mortgage News, Fannie Mae predicts average rates for the 30-year fixed mortgage loan will remain at 2.8% through 2021 and only rise to 2.9% in 2022. The Mortgage Bankers Association (MBA) predicts rates will rise to 3.3% in 2021 and to 3.6% in 2022.
Again, these are informed guesses. No one can predict the future, but these estimates can give you a rough idea of what the year will look like if you’re thinking about buying real estate.
Buyers have also been enjoying a year of historically low rates, so we’re overdue for an increase in rates as well. According to Bankrate, rates for the 30-year fixed loan have been low throughout 2020, in part due to the COVID-19 pandemic.
But the pandemic also spurred people to leave cities and buy homes in the suburbs and countryside. When there is high demand for mortgage loans, mortgage rates tend to increase.
Still, just because experts predict it, doesn’t mean it will be so. Many different factors influence mortgage rates, and no analyst can accurately predict how all of them will play out in a year.
What Drives Mortgage Rates?
Many of the factors that drive mortgage rates are economic and outside of our control. Here are some of the most important factors to consider.
Your Credit History
When experts discuss “the current mortgage rate,” they’re usually talking about the rate you might get if you have a stellar credit history. Only borrowers with excellent credit can get the best rates.
If you pay your bills on time, keep your credit card usage low, and have a high credit score, you can secure a low rate for your mortgage.
This is the only factor you can control yourself. Most of the other factors affecting mortgages have to with macroeconomics, local economics, or government policy.
The Housing Market
The state of supply and demand in the housing market has a significant influence on mortgage rates. When fewer homes are being built or put up for sale, there is a decline in homebuying. This decreases mortgage rates because fewer people are taking out mortgages.
If there isn’t much demand for homes, this also might result in fewer people taking out mortgages, thus decreasing the mortgage rate. Likewise, mortgage rates can increase when demand for mortgages is high and when there is plenty of real estate on the market.
Inflation refers to the general rise in the price level of goods in an economy over time. When prices rise, it results in less buying power per unit of currency. Inflation always gradually increases, but the speed at which it grows can affect people’s buying power in the short term.
Lenders pay close attention to inflation because a high rate of inflation means they won’t earn as much for the returns they receive from returns on mortgages. If inflation is high, lenders may increase their mortgage rates to ensure they get a decent return.
Mortgage rates are also affected by economic growth. When the economy is doing well, the country does well, too. But a strong economy also leads to more consumer purchasing, including more purchasing of real estate.
When the economy is in an upswing, mortgage rates tend to go up because lenders can only lend so much money to borrowers. They can also take advantage of the high demand to secure better returns on their loans.
When the economy is slowing down or in a recession, people lose purchasing power and income. Fewer people are buying property, and mortgage rates go down as a result.
The Bond Market
Banks, lenders, and investment companies don’t just make money by collecting returns on loans. They also sell mortgage-backed securities (MBSs) as investment products.
These investment products compete with government bonds, specifically the 10-year Treasury bond. Although government bonds don’t offer yields as high as MBSs, they are generally less risky for investors. That means companies offering these products must be able to offer a higher yield to buyers if they want their products to be competitive.
If the interest rates on Treasury bonds go up, banks and investment companies may increase mortgage rates to keep their mortgage-backed securities competitive in the market.
Federal Reserve Policies
Finally, Federal Reserve policies can have an impact on mortgage rates, but not directly. The Fed’s job is to maintain the stability of financial markets, and it has several tools for doing this. If the Fed cuts its rates, this only impacts short-term lending rates, not mortgages.
Still, any action the Fed takes to stabilize the economy can influence other factors that affect mortgage rates, such as inflation and economic growth.
Reach Your Homebuying Goals with GoldCoast Mortgage
There’s a lot to consider here, but the good news is that mortgage rates aren’t likely to rise too much in 2021 and beyond.
If you’re concerned about missing an opportunity to take advantage of low rates, you can still get an excellent rate on your mortgage this year, even if rates increase as the MBA predicts. Mortgage rates are some of the lowest they’ve been in history. By comparison, consider that the average mortgage rate hit 18.5% in 1981!
If you’re thinking about buying real estate in Massachusetts, GoldCoast Mortgage can guide you towards a mortgage that helps you achieve your goals. Contact GoldCoast Mortgage today to find out how we can help.