Will mortgage rates increase in 2021?

While mortgage rates in the U.S. have been under 3 percent for a few months, there is a good chance they will be headed up later in the year. As unemployment rates have dropped and more Americans are being vaccinated the economy is expected to recover, which will likely lead to higher mortgage rates. 

If you are in the market for a new home and want a low-rate mortgage to go with your new home, now may be the time to pull the trigger before rates head up. Let’s have a look at a few of the most popular mortgages available to see what experts expect to happen:

30-year mortgages

This is the most popular mortgage in American and the average rate jumped up from 2.95% to 2.99% last week according to Freddie Mac. While this increase is troubling, rates are still well below 3.18% which was the average a year ago. 

However, Freddie Mac forecasts that the 30-year rate average will be 3.4% by the fourth quarter of this year. While this is not a huge jump, even a tenth of a point gain can push up your mortgage payment.

In addition, home prices have seen double-digit gains over the last 10 months in most parts of the country which has pushed the national median listing price to a new record high of $380,000. Many homeowners have decided to refinance their homes instead of purchasing a new house and according to Black Knight, a mortgage technology and data provider, many homeowners could still save an average of $287 a month by refinancing.

15-year mortgages

When it comes to 15 year fixed-rate mortgages, the average rate of 2.27% stayed unchanged. This is slightly lower than the average a year ago which came in at 2.62%.

These mortgages tend to be more popular with homeowners who can afford a higher monthly payment and want to save money on the interest costs over the life of the loan. While experts expect rates to rise slightly on 15-year mortgages, rates should remain affordable and if you can afford the monthly payment, this is an excellent loan to consider when refinancing. 

Adjustable-rate mortgages

Adjustable-rate mortgages or ARMS saw their average rate rise slightly last week, going to 2.64% last week, up from 2.59%. The average rate for an ARM a year ago was 3.10%.

Adjustable-rate mortgages tend to start with a lower interest rate than a fixed rate loan but after the initial period they can adjust up or down depending on the prime rate or another benchmark. In many cases, the interest rate is fixed for the first five years of the loan and then adjusts every year. 

Tips for finding a great mortgage rate

Most experts expect rates to climb over the next year so if you want to get a great mortgage rate, it’s time to act. Here are a few tips to help you find a great mortgage rate:

• Shop around: This is the best way to find a great rate. Banks have different lending criteria and programs which can result in differences in the interest rate they can offer you. Check with friends and family for recommendations and shop at least five different lenders.
• Credit score: Your credit score has a major impact on your mortgage rate so before you start shopping around for a mortgage, check your credit score and do whatever you can to improve it if necessary. 
• Higher down payment: In most cases, the larger your down payment, the better rate you will get on your mortgage. If possible, up your down payment before shopping for a mortgage. 
• Prepay points: It is possible to lower your interest rate by prepaying interest points at the closing of your mortgage. One point is equal to 1% of the loan amount so if your mortgage is $100,000, one point will cost $1,000 at closing.