Mortgage interest rates forecast: Will rates go down in August 2021?

Tim Lucas
The Mortgage Reports editor

Mortgage rate forecast for August 2021

Today’s mortgage rates are almost back to record-low territory. And it seems likely we’ll see more sub-3% rates in August. 

With the Covid-19 Delta variant spreading rapidly, there’s concern that economic growth could be stalled. And a slower economy means lower rates. 

Of course, there’s never any guarantee rates will stay flat. So now is a great time to lock if you’re ready to do so.

Find your lowest mortgage rate (Jul 29th, 2021)

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Will mortgage rates go down in August? 

No one expected mortgage rates to keep falling in July. But fall they did. 

By mid-July, the average rate for a 30-year loan was just 2.88% — the lowest level since February of this year, according to Freddie Mac. 

These new low rates can largely be attributed to the pandemic. As the Delta variant becomes a greater concern, there’s renewed uncertainty about where U.S. and world economies are headed.

Remember that a weaker economy — even the fear of an economic downturn — can push mortgage rates lower. And with the Delta variant raging, economists and investors are beginning to worry about new financial headwinds at home and abroad. 

These fears have been enough to funnel more money into ‘safe’ vehicles, like U.S. mortgage-backed securities (MBS). And that’s a big part of why today’s mortgage rates are so incredibly low. 

Will mortgage rates fall in August? Maybe. But probably not by a substantial amount. More likely, rates will stay flat or nudge slightly upward. 

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.

Find your lowest mortgage rate (Jul 29th, 2021)

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.

Housing Authority30-Yr Mortgage Rate Prediction (Q3 2021)
Fannie Mae3.00%
National Assoc. of Home Builders3.13%
National Association of Realtors3.20%
Mortgage Bankers Association3.20%
Wells Fargo3.25%
Freddie Mac3.30%
Average Prediction3.18%
Find and lock a low rate (Jul 29th, 2021)

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 its purchasing of MBS — known as ‘tapering’ — mortgage rates are almost certain to increase by a wider margin than we’ve seen this year. And that could be coming before the end of 2021, according to the minutes from last month’s FOMC meeting. 

“Discussion was had around whether to reduce purchases of mortgage-backed securities first or at a faster pace than Treasury bonds when the decision is made to reduce their balance sheet,” explained mortgage commentator Rob Chrisman

“These changes are likely to happen before the end of the year, while there is no expectation for a change to the Fed Funds Rate until 2022.”

If that’s the case, we could see substantially higher rates before the end of the year.

Borrowers who want to know what mortgage rates will do next should keep an eye on the FOMC meeting happening July 27-28. 

Further discussion of tapering MBS purchases soon could nudge rates higher — though the impact will likely be softened as renewed Covid concerns are keeping rates low on their own.

Current mortgage rates are still at historic lows.

Since 1972 — when Freddie Mac began tracking rates — the average mortgage rate for a 30-year loan has been around 8%.

By comparison, today’s mortgage rates start at 2.75% (2.75% APR) for a 30-year fixed-rate mortgage. And rates start at just 2.375% (2.375% APR) for a 15-year FRM.1

The following chart shows mortgage rate trends for 30- and 15-year fixed-rate mortgages based on Freddie Mac’s weekly interest rate survey:

Data: Freddie Mac
30 Year Conventional
15 Year Conventional

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.

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.

June 2021May 2021April 2021
Conforming Loan Rates3.16%3.15%3.17%
FHA Loan Rates3.23%3.23%3.20%
VA Loan Rates2.80%2.81%2.77%
Jumbo Loan Rates3.10%3.21%3.21%

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.

Find your lowest mortgage rate (Jul 29th, 2021)

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.

Verify your refinance eligibility (Jul 29th, 2021)

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. 

For more information, see: 8 Quick tips to lower your home buying costs

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.

Find your lowest rate (Jul 29th, 2021)

Mortgage interest rate FAQ 

Are mortgage rates expected to drop? 

Mortgage rates are not expected to drop by any significant amount in the remainder of 2021. Of course, interest rates are volatile, and rates could fall below 3 percent from time to time. But those drops should be blips in an overall flat or upward trend.

Will mortgage interest rates go up in 2021?

Yes, mortgage rates are likely to increase in 2021 and next year. Mortgage experts and housing authorities all predict rates in the low- to mid-3 percent range by the end of the year, rather than in the high 2s where they’ve been recently. However, due to economic uncertainty caused by the Covid-19 Delta variant, significant rate increases may not come until the end of the year. 

What is the 30-year mortgage rate right now? 

Freddie Mac is still citing average 30-year rates below 3 percent. But remember that rates vary a lot by borrower. Those with perfect credit and large down payments may see 30-year rates in the 2 percent range, while lower-credit borrowers and those with non-QM loans might see interest rates closer to 4 percent. You’ll need to get pre-approved for a mortgage to know your exact rate.  

Will mortgage rates go up with inflation? 

In a normal market, inflation leads to higher mortgage rates. Fixed-rate assets like mortgage-backed securities (MBS) have to offer bigger returns to entice investors when inflation is rising. However, we’re not in a normal market. The Fed believes current inflation rates will be temporary, which is helping keep mortgage rates low. And economic concerns over coronavirus are pushing rates down as well. So they haven’t responded to inflationary pressures as usual. 

What is the lowest mortgage rate ever?

At the time of this writing, the lowest 30-year mortgage rate ever was 2.65 percent. That’s according to Freddie Mac’s Primary Mortgage Market Survey, the most widely-used benchmark for current mortgage interest rates.

What’s a good mortgage rate? 

Any mortgage rate in the low- to mid-3 percent range is very good by historical standards. Looking back just one year, mortgage rates started 2020 at nearly 4 percent. And they were above 4.5 percent in early 2019. So today’s rates are excellent by comparison.

Is now a good time to refinance? 

That depends on your situation. It’s a good time to refinance if your current mortgage rate is above market rates and you could lower your monthly mortgage payment. It might also be good to refinance if you can switch from an adjustable-rate mortgage to a low fixed-rate mortgage; refinance to get rid of FHA mortgage insurance; or switch to a short-term 10- or 15-year mortgage to pay off your loan early.

Is it worth refinancing for 1 percent? 

It’s often worth refinancing for 1 percentage point, as this can yield significant savings on your mortgage payments and total interest payments. Just make sure your refinance savings justify your closing costs. You can use a mortgage calculator or speak with a loan officer to crunch the numbers.

What will mortgage rates be in 5 years? 

Based on what we know today, it seems likely mortgage rates could be higher in 5 years than they are now. Current mortgage rates are near their lowest levels ever, and seem more likely to rise than to drop further. However, any number of unexpected events could change the course of interest rates in the next few years. For instance, no one predicted the Covid pandemic would push mortgage rates to new record lows in 2020 and 2021.

How do I shop for mortgage rates? 

Start by choosing a list of 3-5 mortgage lenders that you’re interested in. Look for lenders with low advertised rates, great customer service scores, and recommendations from friends, family, or a real estate agent. Then get pre-approved by those lenders to see what rates and fees they can offer you. Compare your offers (‘Loan Estimates’) to find the best overall deal for the loan type you want.

Should I lock my mortgage rate today?

Refinancers: If you’ve compared loan offers and you’re confident you’ve found the best deal, today is a great time to lock a mortgage refinance rate. Home buyers: If you have a signed purchase agreement and loan approval in hand, today is also a great time for you to find a low rate and lock in.

What are today’s mortgage rates?

Low mortgage rates are still available. You can get a rate quote within minutes with just a few simple steps to start.

Verify your new rate (Jul 29th, 2021)

1Today’s mortgage rates based on a daily survey of select lending partners of The Mortgage Reports. Interest rates shown here assume a credit score of 740. See our full loan assumptions here.

Selected sources:

  • https://www.blackknightinc.com/category/press-releases
  • https://www.federalreserve.gov/monetarypolicy/fomccalendars.htm
  • http://www.freddiemac.com/research/datasets/refinance-stats/index.page