Will the 30-Year Fixed Rate Go Up or Down?
Interest rates increase or decrease as a result of the supply and demand for credit. When higher numbers of people are taking out loans, the interest rates tend to follow an upward trajectory. But the supply-and-demand equation isn’t the only thing that affects interest rate levels. A few other factors, such as inflation, economic growth, shifts in monetary policy, bond markets, and housing market conditions, also impact the interest rates of different loan products.
Even though the Fed will maintain the federal funds rate at a range of 0% to 0.25% until after 2023, the latest trends indicate that mortgage rates are likely to increase in the near future. Housing authorities, including the Mortgage Bankers Association, National Association of Realtors, National Association of Home Builders, Fannie Mae, Freddie Mac, and Wells Fargo, have recently forecasted that the 30-year rates could go as high as 3.6% over the next few months.
But even if the 30-year, fixed-rate mortgage and refinance rates are projected to increase, that doesn’t mean they’ll shoot up overnight. In fact, analysts expect mortgage rates to rise gradually, with several ups and downs, until they’ll settle into a longer-run level. However, no one knows for sure whether the 30-year fixed rates will stay around 3% or climb to 3.2% or 3.6% by the end of the summer. On the other hand, most forecasts suggest an increase ranging from 24 to 65 basis points, which would translate into a rate rise of 0.24% to 0.65%. What does this mean? In a nutshell, if you take out a 30-year, fixed-rate mortgage to buy a $400,000 home and put 20% down, a 0.24% to 0.65% increase means that you’d pay between $14,760 and $41,040 more in interest over the life of the loan.
Another important aspect you should be aware of is that the interest rate a borrower can obtain depends not only on the average mortgage rate but also on his or her credit score, employment status, overall financial situation, as well as the type of loan, repayment term, and the amount that he or she wants to borrow. An applicant with an excellent credit score and a stable, high-paying job is considered a lower-risk borrower by lenders. As a result, he or she could obtain a lower interest rate than an applicant with a poor credit score or an unstable job.
Current Mortgage Options for Homebuyers
Changes in interest rates can have a wide range of positive and negative effects on an applicant’s ability to qualify for a mortgage. The higher the rate on a 30-year, fixed-rate mortgage, the lower the chances of qualifying for the loan amount a person might need in order to purchase a piece of property. On the bright side, the federal government, housing agencies, and private mortgage lenders are taking active steps to extend the availability of home loan products to a higher number of potential borrowers.
Because rising interest rates will increase the cost of mortgages, knowing what to expect for the rest of 2021 could help you find the best type of mortgage for you. Here are three main types of home loans you may want to consider.
Conventional mortgages – Even though the 30-year fixed rate is expected to increase this year, one of the most important advantages of opting for a conventional mortgage is that it provides lower interest rates to the borrowers who have higher credit scores and are able to put down 20% on the home they intend to purchase. Therefore, if you have a good credit score and enough money for the down payment, you could obtain a lower interest rate even in a rising rate environment. An important thing to remember before applying for a mortgage is that interest rates change daily. This basically means that you might get 3.125% today, 3% tomorrow, and 3.25% next week. As an example, the average 30-year mortgage rate moved down from 3.06% in April to 2.96% in May 2021, which means a decrease of 10 basis points.
FHA loans – Over the past year, the interest rates on FHA loans have been similar to the conventional mortgage rates. It is for this reason that FHA-insured mortgages offer some excellent financing options to potential borrowers who don’t meet the eligibility requirements for a conventional mortgage.
VA loans – In general, VA loans have lower interest rates compared to other types of home loans. But unlike conventional mortgages and FHA loans, which can be accessed by anyone who meets their requirements, VA loans are only available to active-duty military members, qualifying veterans, and their surviving spouses.
Due to the current economic uncertainty, the mortgage rates are quite unpredictable. However, every scenario we’ve analyzed suggests a potential increase from today’s mortgage rates. Whether you want to buy a new home or refinance your current mortgage, contact us today and we’ll help you find the lowest mortgage rate possible for your financial situation!
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