January 2020 mortgage rates forecast (FHA, VA, USDA, Conventional)

Tim Lucas
The Mortgage Reports editor

Mortgage rates forecast for January 2020

Looking back, 2019 was a fantastic year for mortgage rates, and January should continue to deliver value for mortgage shoppers.

Rates started dropping in early-2019 and have held very low throughout the year.

Rates are in the sub-4% range according to Freddie Mac, which was unthinkably low just a few years ago.

Comparing to one year ago, mortgage consumers are saving $125 per month on a 30-year fixed, $300,000 mortgage.

If you’re waiting for lower rates later in 2020, here’s news for you: ultra-low rates are already here.

Show Me Today's Rates (Jan 18th, 2020)

Predictions for January

January could be a wild ride for mortgage rates. Market-moving news will leave rates different than they were in December. The only question is, will they be more or less advantageous for mortgage shoppers?

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Forecasts for 2020 say rates will average around 3.7%. However, that doesn’t tell you how high or low rates could go throughout the year.

Rates could be 4% for six months and 3.4% for the next six months and you still get an average of 3.7%. But when you lock matters a lot.

Rates are hovering near 3.7% now according to Freddie Mac data, so it’s an excellent time to lock in and eliminate the risk of higher rates later.

Mortgage Rates Forecast Through Spring 2020

What happens to mortgage rates after Trump’s impeachment?

President Trump recently became just the third U.S. president to be impeached. However, that doesn’t mean removal from office. His case goes before the Senate where it is likely to be dismissed. Stil, many are wondering what the impeachment means for the economy and mortgage rates specifically.

The answer: it may not be as important as you think.

According to Bankrate, the stock market pretty much did what it was going to do amidst the Nixon and Clinton impeachment worries. We might expect “business as usual” from mortgage rates as well.

In the Nixon era, from 1973 to 1975, stocks plummeted, but it wasn’t necessarily due to Nixon’s Watergate scandal or ensuing resignation (he resigned before he could be impeached). Skyrocketing oil prices pushed the U.S. into recession and that’s why stocks performed poorly.

Typically, mortgage rates drop when the economy falters, but in this case, rates jumped. They went from around 7.5% in early 1973 to near 9% in late 1975 (the basic timeframe of the Nixon scandal).

What happened during the Nixon impeachment scare and ensuing resignation?
Mortgage rates during the Nixon impeachment scare and ensuing resignation 1973-1975. Image: Freddie Mac

This was an inflation-induced recession, and rates do horribly in high-inflation settings. So that explains the odd behavior of rates — rising during a recession — rates usually fall during recession as we saw during the last downturn.

Fast forward 25 years from the days of bell-bottoms and disco music. How did stocks and mortgage rates do during Bill Clinton’s impeachment in the late ’90s? (Clinton was officially impeached then acquitted in the Senate).

Stocks did drop for about a month in late 1998 as impeachment proceedings developed. But they quickly rose again to new highs, even before Clinton’s acquittal in February 1999.

Mortgage rates were surprisingly tame. The 30-year fixed mortgage fell slightly from around 7% in mid-1998 to the high 6s in early 1999 when the impeachment drama officially ended. Rates dropped to a “low” of 6.49% the week of October 9, 1998, which corresponds to the official start of the impeachment inquiry on October 5. But rates zoomed back to near 7% a week later.

Mortgage rates during the Clinton impeachment process
Mortgage rates during the Clinton impeachment process mid-1998 through early 1999. Image: Freddie Mac

If history is our guide, we may see a very temporary reduction in mortgage rates — maybe for just for a day or two — if Trump’s impeachment holds up in the Senate. But markets will soon ingest the news and focus on the broader world economy.

Luckily, the destinies of millions of home buyers and refinance candidates doesn’t depend too much on Trump’s impeachment status.

Compare Rates From Top Rated National Lenders and Save (Jan 18th, 2020)

How will the January 2020 Fed meeting change rates?

The Federal reserve uses “levers” to adjust economic performance in the U.S. One of those levers is the federal funds rate.

It’s the rate at which banks can lend each other money, but it affects home equity lines, credit card rates, and even mortgage rates, although indirectly.

On October 30, the Fed cut rates for the third consecutive time, the fastest drop since the late 2000s economic downturn. Lackluster economic data combined with pressure from President Trump led to lower rates.

But the group didn’t cut rates in December, and don’t count on more rate cuts during the January 28-29 meeting. Federal Reserve Chair Jerome Powell has made it clear that something drastic would have to happen to warrant another cut.

“We see the current stance of monetary policy as likely to remain appropriate,” said Powell as the post-meeting conference in October, “as long as incoming information about the state of the economy remains broadly consistent with our outlook.”

In other words, the unexpected would need to occur before the Fed acts again.

In short, it’s likely unwise to wait for Fed-induced lower rates before you buy a home or refinance one.

Federal Funds Rate Forecast Through 2022 - December 2019 Forecast

Will mortgage rates stay low?

Though rates may rise somewhat, we are still predicting rates below 4% through mid-2020.

That’s consistent with predictions from major housing authorities.

But just when you thought you could sit back and buy a home next year, I have to mention how unpredictable rates are.

Back in late 2018, housing experts were calling for rates in the 5s for 2019. Rates bottomed out at 3.49% mid-year.

So does that mean that rates will actually be near 5% in 2020, now that experts predict sub-4% rates? It’s quite possible.

Related: 2020 mortgage rates forecast from 10 experts

The fact is that most predictions are wrong (an awkward thing to say in the middle of a mortgage rates forecast article). So don’t risk homeownership based on forecasts.

Sure, rates are supposed to stay around 3.7% through 2020 according to experts. But that’s where rates are now. So why not capture a low rate now and eliminate any and all risk of rising rates?

But if you’d still like me to make the case for lower rates, here goes.

Rate-suppressing factors include:

China trade war: Let’s face it. This issue isn’t going away any time soon. The more uncertainty the U.S.-China trade war brings, the lower rates might go. And even if we fully resolve this conflict, the U.S. economy is spooked. Manufacturers will be gunshy about turning production “up to 11” if they feel a new trade war could ruin them.

Economic uncertainty: Manufacturing has slowed this year, hitting a 10-year low in August 2019. Trade uncertainty is weighing on businesses and overall economic impact is unclear. Additionally, predictions of recession are becoming more common. Even the possibility of recession is helping keep rates low.

Demand for U.S. financial instruments: Mortgage rates are determined by the price of mortgage-backed securities (MBS). (Learn how mortgage rates are made here.) These are financial instruments, bought and sold by investors worldwide. As rates fall in other economies (Japan and Germany are now issuing negative-rate bonds), U.S. mortgages are looking awfully attractive. Even a 3% return on investment is better than 0% or even negative. Imagine if you had to pay to keep your money in a savings account. That’s exactly what investors in many economies are doing. U.S. mortgage bonds will continue to deliver positive returns, so investors will pile in. This demand drives down consumer mortgage rates.

If you’ve been thinking about a home purchase, refinance, or home equity line of credit, this month is looking to be a great one to take action.

Show Me Today's Rates (Jan 18th, 2020)

Housing agencies nationwide are calling for rates in the high 3s for 2020.

Agency 30-Yr Rate Prediction
National Association of Realtors 3.60%
National Association of Home Builders 3.90%
Mortgage Bankers Association 3.90%
Freddie Mac 3.70%
Fannie Mae 3.60%
Wells Fargo 3.55%
Average of all agencies 3.70%
2020 Mortgage Rate Forecasts from Housing Authorities, The Mortgage Reports

To sum it up, rate predictions vary widely. Today’s rate might be as good as we’ll see for years to come, or they might improve.

Advice for January 2020

Knowing what will happen in January is only half the battle. As a mortgage rate shopper, you need to know the best actions to take this month.

2020 mortgage rate strategies

In January, be watching for emerging mortgage products that will gain traction in 2020.

For home buyers, there have been few better times to be looking for a home.

Co-signer mortgage: As home prices and student loan balances rise, first-time home buyers find it difficult to qualify. Their starter incomes just aren’t high enough. That’s why parents, relatives, and friends are agreeing to co-sign on their mortgages. You can “blend” your income with the co-signer’s to qualify for more. The co-signer does not have to live in the home. Here’s how it might work: If you make $5,000 per month, you could afford a home for $280,000 assuming your debt payments are low. But you bring on a co-signer, also with $5,000 monthly income and low debts. Suddenly, you can afford $570,000. There are plenty of rules and risks for the co-signer, but this strategy could work out nicely for moderate-income home buyers, especially in expensive locales.

Bigger loan amounts: Fannie Mae and Freddie Mac just released new, higher conforming loan limits for 2020. Now, homeowners can get loans up to $510,400 without crossing into jumbo loan territory. Jumbo mortgages often require stricter qualifying requirements making them tougher to get for the average buyer. Half-million-dollar loans are now within guidelines for loans offered by nearly every bank and mortgage company in the country. In the most expensive locales such as San Francisco, an applicant can be approved for even higher loans: a 1-unit home loan can be up to $765,600 and a 4-unit home up to $1,472,550. The government has noticed the higher home prices across the country and responded in-kind to help buyers break into the housing market without needing harder-to-get proprietary jumbo loans from individual banks.

Low down payment jumbo loans: One national mortgage lender has created a 5% down loan up to $2 million with no PMI, or 10% down to $3 million with no PMI. If you’re a high-income home buyer, but don’t want to tie up all your assets with a 20-30% down payment, these types of products will be a huge benefit to you in 2020.

Buying a vacation home as your first home: In many locations such as San Francisco, Seattle, and New York, it’s just not feasible to buy as a younger person. You may end up with a mortgage payment two or three times your current rent amount. But many people are looking outside the city to buy their first homes. You can still live and rent in the city, but buy in a recreational area where homes are much cheaper. Plus, you have a nice vacation spot any time you want it. Not using it for months at a time? Rent it out on Airbnb to help make the payments. This will be an emerging trend as more people want to buy homes but find it unrealistic in their city.

Bank statement loans: If you’re self-employed, pay attention to bank statement loan programs. Lenders will review 12-24 months of your bank statements to prove your income. Many newly self-employed applicants are denied because they don’t have two years’ worth of filed tax returns (the traditional qualification method). Or, write-offs are so high that bottom-line income is too low to qualify for anything. In 2020, more lenders will accept your bank statement deposits as proof of income, allowing more renters to become homeowners.

Compare Rates From Top Rated National Lenders and Save (Jan 18th, 2020)

Loan product rate updates

Many mortgage shoppers don’t realize there are many different types of rates. But this knowledge can help home buyers and refinancing households find the best value for their situation.

Following are updates for specific loan types and their corresponding rates.

»RELATED: How Much To Put Down On A House: Maybe $0

Conventional loan rates

Conventional refinance rates and those for home purchases are still low despite recent increases.

According to loan software company Ellie Mae, the 30-year mortgage rate averaged 4.04% in November (the most recent data available).

This is higher than Freddie Mac’s 3.73% average because it factors in low credit and low-down-payment conventional loan closings, which tend to come with higher rates. Additionally, the most recent Ellie Mae report shows rate levels before they started dropping significantly.

Lower credit score borrowers can use conventional loans, but these loans are more suited for those with decent credit and at least 3% down. Five percent down is preferable due to higher rates that come with lower down payments.

Twenty percent of equity is preferred when refinancing.

With adequate equity in the home, a conventional refinance can pay off any loan type. Got an Alt-A, subprime, or high-PMI loan? A conventional refi can take care of it.

For instance, say you purchased a home three years ago with an FHA loan at 3.5% down. Since then, home values have skyrocketed.

You refinance into a conventional loan (because you now have 20% equity) and eliminate FHA mortgage insurance.

This could be a savings of hundreds of dollars per month, even if your interest rate goes up.

Getting rid of mortgage insurance is a big deal. This mortgage calculator with PMI estimates your current mortgage insurance cost. Enter 20% down to see your new payment without PMI.

Show Me Today's Rates (Jan 18th, 2020)

FHA mortgage rates

FHA is currently the go-to program for home buyers who may not qualify for conventional loans.

The good news is that you will get a similar rate — or even lower one — with an FHA loan than you will with conventional.

Related: Read more about FHA costs and requirements on our FHA loan calculator page.

According to loan software company Ellie Mae, which processes more than 3 million loans per year, FHA loan rates averaged 3.93% in November (the most recent data available), a bit lower than the average conventional rate.

Another interesting stat from Ellie Mae: About 30% of all FHA loans are issued to applicants with scores below 650.

FHA loans come with mortgage insurance. But the overall cost is not much more than for conventional loans.

A little-known program, called the FHA streamline refinance, lets you convert your current FHA loan into a new one at a lower rate if rates are now lower.

An FHA streamline requires no W2s, pay stubs, or tax returns. And you don’t need an appraisal, so home value doesn’t matter.

Learn more about the FHA streamline refinance here.

Shop and Compare Today's Rates and Save (Jan 18th, 2020)

VA mortgage rates

Homeowners with a VA loan currently are eligible for the ever-popular VA streamline refinance.

No income, asset, or appraisal documentation is required.

If you’ve experienced a loss of income or diminished savings, a VA streamline can get you into a lower rate and better financial situation. This is true even when you wouldn’t qualify for a standard refinance.

But don’t overlook the VA loan for home buying. It requires zero down payment. That means if you have the cash for closing costs, or can get them paid for by the seller, you can buy a home without raising any additional funds.

Don’t overlook the VA loan for home buying. It requires zero down payment.

VA mortgages are offered by local and national lenders, not by the government directly.

This public-private partnership offers consumers the best of both worlds: strong government backing and the convenience and speed of a private company.

Most lenders will accept scores down to 620, or even lower. Plus, you don’t pay high interest rates for low scores.

Quite the contrary, VA loans come with the lowest rates of all loan types according to Ellie Mae. In November (the most recent data available), 30-year VA mortgage rates averaged just 3.67% while conventional loans averaged 4.04%, representing a big discount if you’re a veteran.

Check your monthly payment with this VA loan calculator.

There’s incredible value in VA loans.

Shop and Compare Today's Rates and Save (Jan 18th, 2020)

USDA mortgage rates

Like FHA and VA, current USDA loan holders can refinance via a “streamlined” process.

With the USDA streamline refinance, you don’t need a new appraisal. You don’t even have to qualify using your current income. The lender will only make sure that you are still within USDA income limits.

More about the USDA streamline refinance.

Home buyers are also learning the benefits of the USDA loan program for home buying.

No down payment is required, and rates are ultra-low.

Home payments can be even lower than rent payments, as this USDA loan calculator shows.

Qualification is easier because the government wants to spur homeownership in rural areas. Home buyers might qualify even if they’ve been turned down for another loan type in the past.

Show Me Today's Rates (Jan 18th, 2020)

Mortgage rates today

While a monthly mortgage rate forecast is helpful, it’s important to know that rates change daily.

You might get 3.9% today, and 4.0% tomorrow. Many factors alter the direction of current mortgage rates.

To get a synopsis of what’s happening today, visit our daily rate update. You will find live rates and lock recommendations.

January economic calendar

The next thirty days hold no shortage of market-moving news. In general, news that points to a strengthening economy could mean higher rates, while bad news can make rates drop.

  • Wednesday, January 1: Markets closed
  • Thursday, January 2: ISM Manufacturing
  • Friday, January 10: Nonfarm Payrolls, wages, unemployment rate
  • Tuesday, January 14: Consumer Price Index
  • Thursday, January 16: Retail Sales
  • Friday, January 17: Housing Starts
  • Wednesday, January 22: Existing Home Sales
  • Wednesday, January 29: Fed meeting adjourns, rate announcement

Now could be the time to lock in a rate in case these events push up rates this month.

Mortgage rates Q&A

Below are some of the most common questions about mortgage rates.

What are the current mortgage rates today

Mortgage rates fluctuate based on market conditions and your specific situation. For instance, someone with a high credit score will get a lower rate than someone with a low score. To see average rates, go to or contact a lender over the phone or online here.

Will mortgage interest rates go down in 2020?

According to our survey of major housing authorities such as Fannie Mae, Freddie Mac, and the Mortgage Bankers Association, the 30-year fixed rate mortgage will average around 3.7% through 2020. This is about where rates are as of December 2019. See the full forecast from housing authorities here.

Can you negotiate a better mortgage rate?

Yes. Lenders have the flexibility to drop their rates and fees. Often, you must approach a lender with a better offer in writing before they will lower their rate.

Is 3.875% a good mortgage rate?

Historically, it’s a fantastic mortgage rate. The average rate since 1971 is more than 8% for a 30-year fixed mortgage. To see if 3.875% is a good rate right now and for you, get 3-4 mortgage quotes and see what other lenders offer. Rates vary greatly based on the market and your profile (credit score, down payment, and more).

Which mortgage company has the best rates?

Most companies have similar rates. However, some offer ultra-low rates to gain market share. Others have lower rates for FHA than conventional, or vice versa. The only way to know if your company is offering the lowest rate is to get quotes from various lenders.

How much does 1 point lower your interest rate?

A point is a fee equal to 1% of your loan amount, or $1,000 for every $100,000 borrowed. Your rate could drop 0.25%-0.50% or more for each point paid, however, that can vary greatly depending on the lender, loan characteristics, and borrower profile.

How can I avoid paying closing costs?

You can 1) request a lender credit; 2) request a seller credit (if buying a home); 3) increase your mortgage rate to avoid points; 4) get a down payment gift (which can be used for closing costs); 5) get down payment assistance. Find more strategies here.

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.

Show Me Today's Rates (Jan 18th, 2020)  

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