Before we get into forecasts, I want to educate you on what mortgage rates are. If you’re rolling your eyes, I hope they don’t fall out of your head. Not everyone’s a financial expert and it always helps to start simple. A mortgage rate is the rate of interest charged on a mortgage and an important factor when someone is looking to finance a new home.
There are many options when it comes to mortgage rates. One you may have heard of is a fixed mortgage rate, which means the rate doesn’t shift for the entire term of the mortgage. The average rate on the 30-year fixed-rate mortgage went up in January, after falling seven months in a row, which is a good sign, says Nerdwallet.com. Don’t get too excited. While the site predicts that fixed mortgage rates will rebound in February, it’s not by a lot, increasing less than a quarter of a percentage point. As we’ll explore in a bit, every percent counts though.
The Importance of Mortgage Rates
Why should you care about mortgage rates and their forecast for this month and beyond? It’s a great question. Your mortgage interest rate affects the amount of money you’ll pay along with the interest costs you’re responsible for over the life of your loan.
While it may not seem like a lot, “dropping your rate just 1 percent from 3.75% to 2.75% could save you $250 per month on a $250,000 loan, a 20% reduction in your monthly mortgage payment,” says themortagereport.com. See, every bit does make a difference.
What Are Mortgage Rates Based On?
Who sets the rates? Neither the U.S. government nor the Federal Reserve currently set mortgage rates, however, they can certainly influence them. “Mortgage rates are largely a by-product of price movements for mortgage-backed securities (MBS), complex financial products bought and sold on the secondary market,” writes Bankrate.com.
If we take a look at President Biden, his priority has been to get the pandemic under control. On the back burner is the revived first-time homebuyer tax credit of $15,000 towards a down payment on a home. This could drive rates up as it would create a higher demand and price point for homes. We will just have to wait and see how this turns out.
You already know the strength of the U.S. economy, or rather lack of it has a huge impact on mortgage rates. With a weak economy and one amid a pandemic, the rates go down. When there’s a strong economy, the rates go up.
Your credit score will come in handy when it’s time to receive your mortgage rate. If your credit is healthy and your score is high, you’ll get a lower rate with a large down payment. The lowest mortgage rates go to borrowers with credit scores of 740 or higher. Keep aiming to increase your credit score by paying off those bills on-time.
Some lenders may have special rates geared towards great credit or poor credit, as will reflect in the rates. Shopping around is a smart idea because lenders utilize their individual formulas and cater to various types of borrowers. If you don’t fall into the right category, they will price you high so deter you from accepting their offer,
Forecast for February Mortgage Rates
Let’s whip out our crystal ball and start forecasting for this month. Economists usually have a pretty good idea of what’s to come, however, nothing is guaranteed. The economy is in a much better position than it was in 2020 as things start to open up. As life starts to return to a version of normalcy with people getting vaccinated and much-needed job growth, there is hope for an improving economy. Hallelujah.
HSH.com tells us that while the economy can’t fully reopen until the prevalence of COVID keeps decreasing, it’s performing at about 80% of where it was before the pandemic broke out.
We’re slowly moving away from record lows when it comes to mortgage and interest rates. Looking forward a bit, HSH.com believes “The average offered rate for a conforming 30-year FRM as reported by Freddie Mac will run in a range of 2.67% to 2.89%, while the initial fixed interest rate on a conforming hybrid 5/1 ARM (erratic weeks aside) should roam between a 2.71% and 2.93% pair of fences.
Got that? It’s a lot of numbers and words that may be foreign to those that don’t speak the language of economy.
Forecasters see favorable rates for borrowers in the days and weeks ahead. Greg McBride, Bankrate CFA says, “After a spurt higher in the first half of January, bond yields and mortgage rates are poised to ease in the coming weeks as the reality of raging COVID cases and weak economic fundamentals sets in.”
Looking ahead, McBride also forecasts rates will be “volatile throughout 2021” as the vaccination process progresses. “Mortgage rates will hopscotch back and forth around the 3 percent threshold but end the year slightly above that mark at 3.1 percent.”
If you’re in the market for a mortgage, you shouldn’t wait. As the economy gets stronger and COVID becomes more and more under control, rates will most likely increase. Mortgage rates change daily so if you’re shopping around, it makes sense to look daily. As mentioned, even a small percentage can make a large difference.
Become your own economist by following trends and what the experts are predicting. Continue to get that credit score up and aim to take advantage of mortgage rates when they’re down. What do you think the forecast for mortgage rates looks like this month and beyond?
Here’s to the Wellness of Your Wallet!