Mortgage interest rates forecast: Will rates go down in August 2021?
August 6, 2021
Mortgage rate forecast for next week (August 8-14, 2021)
Mortgage rates fell this past week. And there's a chance they could tick slightly lower next week (August 8-14).
But borrowers waiting to lock a rate should act carefully. Sustained drops like the one we've been experiencing are often followed by a rebound. So there's a chance rates could inch back up sooner rather than later.
Even if rates do rise, though, they're likely to stay in the sub-3% range next week. Borrowers ready to lock in the next few days will be in a great position to take advantage of these historic lows.
Will mortgage rates go down in August?
Mortgage rates have already fallen in August.
As of August 5, the average 30-year mortgage rate was back down to just 2.77% — the lowest level since February, according to Freddie Mac.
That's a 25 basis point (0.25%) decrease from June's peak, when the 30-year rate was averaging 3.02%.
And it's almost half a point lower than this year's high, which was 3.18% in March.
These near-record low rates can largely be attributed to the Delta variant. With coronavirus cases surging, there's renewed uncertainty about where the U.S. economy is headed in the coming months.
Some states and businesses are re-upping mask mandates. Major companies like Amazon, Wells Fargo, and CNN are delaying their return to the office. And the possibility of future shutdowns — at home and abroad — has investors and economists worried about the overall pace of recovery.
Sam Khater, Chief Economist at Freddie Mac, summed things up this week: "With global market uncertainty surrounding the Delta variant of COVID-19, we saw 10-year Treasury yields drift lower and consequently mortgage rates followed suit," he said.
"The 30-year fixed-rate mortgage dipped back to where it stood at the beginning of 2021, and the 15-year fixed remained at its historic low. This bodes well for those still looking to refinance, renovate or even purchase a new home."
If you're waiting to lock a rate, use your best judgment.
Today's rates are exceptionally low, and buyers and homeowners stand to save a great deal. We recommend locking a rate as soon as possible. But, as always, the decision is up to you.
Mortgage interest rates forecast next 90 days
We expect mortgage rates to continue to hover near or just below 3% for the next few weeks. Over the next 90 days, a modest overall increase seems likely.
Based on expert mortgage rate predictions and forecasts from housing authorities, 30-year mortgage rates could go as high as 3.18% within the next 90 days.
Mortgage rate predictions for late 2021
Mortgage interest rates should stay in the low- to mid-3% range throughout the second half of 2021, unless the economy takes a big unexpected turn.
According to major housing authorities — including Fannie Mae, Freddie Mac, and the National Association of Realtors — the average 30-year mortgage rate could fall between 3.0% and 3.30% by fall 2021.
||30-Yr Mortgage Rate Prediction (Q3 2021)
|National Association of Home Builders
|National Association of Realtors
|Mortgage Bankers Association
What could cause mortgage rates to rise or fall?
Many industry experts believed rates would rise further and faster in 2021.
However, there's a tug-of-war in the current market keeping mortgage rates low even when it seems like they should have risen.
What could drive mortgage rates up?
- An improving economy — The better the U.S. economy performs for jobs, consumer spending, and overall growth, the higher interest rates should go
- Inflation — Inflation almost always leads to higher mortgage rates, and inflation rates in 2021 have far exceeded expectations. (Although the Federal Reserve still maintains current inflation rates should be temporary)
- Real estate demand — Despite low inventory, demand for new homes and existing homes remains incredibly strong. Normally, a surge in mortgage financing should lead to higher rates
What's keeping mortgage rates low?
- The coronavirus Delta variant — Fear that the Delta variant could cause further economic disruption at home and abroad is pushing mortgage rates down. Remember that weaker economies lead to lower mortgage rates
- Easy money policies by the Federal Reserve — By keeping its benchmark interest rate (the Federal Funds Rate) near 0% and continuing to purchase billions of dollars worth of mortgage-backed securities (MBS), the Fed is keeping mortgage rates artificially low
- Foreign investment in U.S. debt — Foreign investors continue to purchase relatively safe U.S. investments, including Treasury bonds and MBS. An influx of dollars from these investors means continued low interest rates for borrowers
Keeping an eye on the Federal Reserve
Currently, the Federal Reserve is purchasing $40 billion per month in mortgage-backed securities (MBS) as part of its Covid stimulus program.
This is one of the single biggest factors keeping mortgage rates as low as they are.
When the Fed slows or ‘tapers' its purchasing of MBS, mortgage rates are almost certain to increase by a wider margin than we've seen this year.
And that could be coming in the not-too-distant future.
Although the Fed is split on when to begin tapering asset purchases — one member wants to start as early as this fall — most economists believe a formal announcement will be made in December of this year and that tapering will start in early 2022.
For further insights into the Fed's current policy — and its potential impact on mortgage rates — keep your ear to the ground on August 18. That's when the Minutes from the July FOMC meeting will be released, which could include greater detail about the Fed's current stance on stimulus spending.
Current mortgage interest rate trends
Mortgage rates dropped this week, with the average 30-year fixed rate moving from 2.80% down to 2.77%, according to Freddie Mac's weekly rate survey.
According to the survey, 15-year fixed rates held steady at just 2.10% and 5/1 ARM rates fell from 2.45% to 2.40%.
This puts mortgage rates tantalizingly close to their lowest levels in history.
Remember that the lowest 30-year mortgage rate ever was just 2.65%, recorded by Freddie Mac in January 2021. So anyone who can lock-in at or near today's mortgage rates is getting a fantastic deal on their home loan.
The following chart shows mortgage rate trends for 30- and 15-year fixed-rate mortgages based on Freddie Mac's weekly interest rate survey:
Keep in mind, average interest rates are just that — averages. Some borrowers will get higher interest rates, and some lower.
Whether you're buying or refinancing, be sure to get rate quotes from a minimum of three lenders. Near-record-low rates may still be available for borrowers with strong financials, but only if you're willing to shop around and find your best deal.
Mortgage rate trends by loan type
Many mortgage shoppers don't realize there are different types of rates in today's mortgage market.
But this knowledge can help home buyers and refinancing households find the best value for their situation.
Following are 3-month mortgage rate trends for the most popular types of home loans: conventional, FHA, VA, and jumbo.
|Conforming Loan Rates
|FHA Loan Rates
|VA Loan Rates
|Jumbo Loan Rates
Source: Black Knight Originations Market Monitor Report
Which mortgage loan is best?
The best mortgage for you depends on your financial situation and your goals.
For instance, if you want to buy a high-priced home and you have great credit, a jumbo loan is your best bet. Jumbo mortgages allow loan amounts above conforming loan limits — which max out at $548,250 in most parts of the U.S.
On the other hand, if you're a veteran or service member, a VA loan is almost always the right choice.
VA loans are backed by the U.S. Department of Veterans Affairs. They provide ultra-low rates and never charge private mortgage insurance (PMI). But you need an eligible service history to qualify.
Conforming loans and FHA loans (those backed by the Federal Housing Administration) are great low-down-payment options.
Conforming loans allow as little as 3% down with FICO scores starting at 620.
FHA loans are even more lenient about credit; home buyers can often qualify with a score of 580 or higher, and a less-than-perfect credit history might not disqualify you.
Finally, consider a USDA loan if you want to buy or refinance real estate in a rural area. USDA loans have below-market rates — similar to VA — and reduced mortgage insurance costs. The catch? You need to live in a ‘rural' area and have moderate or low income to be USDA-eligible.
Mortgage rate strategies for August 2021
Rates seem likely to rise in August and beyond, if only marginally. But there are still great opportunities to be had for home buyers and refinancing homeowners in 2021.
Here are just a few strategies to keep in mind if you're mortgage shopping in the next few months.
The time is ripe to refinance
Mortgage rates fell further than anyone thought they would in summer 2021. Over 12 million homeowners are currently "in the money" to refinance, according to Black Knight.
What's more, the FHFA recently removed its Adverse Market Refinance Fee for all new conforming refinance loans.
This led to an instant reduction in refinance rates. Many borrowers who hadn't locked yet saw a drop of around 0.125-0.25 percent. Coupled with today's already-low mortgage rates, many homeowners stand to save big.
There's even a new refinance option for lower-income borrowers.
Fannie Mae's RefiNow loan (which launched in June) and Freddie Mac's Refi Possible (starting in August) guarantee a payment reduction of at least $50 per month for qualified borrowers.
If you've been considering a refinance but didn't think you'd qualify, ask your lender about these programs.
Home buyers, take steps to lower your costs
In today's housing market, it might seem like the cost of buying a home is out of reach.
With prices skyrocketing and bidders offering way above asking price — in cash — first-time home buyer expenses have risen steeply.
But there are steps you can take to keep your costs reasonable. For example:
- Shop around for your mortgage. Costs vary widely by lender
- Negotiate your fees. This could save you hundreds or thousands upfront
- Apply for down payment assistance. These funds can be used for closing costs, too
- Improve your credit. This lowers your interest rate and monthly payments
- Choose your location carefully. Home prices aren't rising at the same pace everywhere
- Close at the end of the month. This could reduce expensive prepaid taxes and homeowners insurance
- Buy a fixer-upper. Prices may be lower, and there are special home loans to cover your renovation costs
Finally, timing your home purchase correctly could help you save. Prices are often highest in spring and summer, so there's a chance buyers in the fall could see better deals.
Save more by shopping around
Mortgage rates may have risen since last year. But some mortgage lenders are still offering near-record low rates.
There's a catch, though.
You can't just look for the lowest rate advertised online. Because the rates lenders advertise aren't available to everyone.
Those offers typically represent borrowers with perfect credit, 20% down or more, and a sterling credit history.
Those criteria won't apply to everyone. The rate you're actually offered depends on:
- Your credit score and credit history
- Your personal finances
- Your down payment (if buying a home)
- Your home equity (if refinancing)
- Your loan-to-value ratio (LTV)
- Your debt-to-income ratio (DTI)
To figure out what rate a lender can offer you based on those factors, you have to fill out a loan application. Lenders will check your credit and verify your income and debts, then give you a ‘real' rate quote based on your financial situation.
You should get 3-5 of these quotes at minimum. Then compare them to find the best offer.
Look for the lowest rate, but also pay attention to your annual percentage rate (APR), estimated closing costs, and ‘discount points' — extra fees charged upfront to lower your rate.
This might sound like a lot of work. But you can shop for mortgage rates in under a day if you put your mind to it. And shaving just a few basis points off your rate can save you thousands.