Will mortgage rates go down in June 2020? Forecast and trends

Mortgage rates forecast for June 2020

Mortgage rates are still hovering near all-time lows achieved in April.

Prudent shoppers aren’t betting on lower rates from here, though, even if we do think rates could go lower. The reason: the times are wildly unpredictable.

The U.S. economy is in uncharted waters. Unemployment claims have spiked to 10 times the levels seen during the Great Recession. No one knows the lasting effects of such a phenomenon.

Rates could jump as easily as they could drop. Your best move might be to lock in an ultra-low rate while it is available.

Find and lock a low rate today. (May 28th, 2020)

In this article:

• Mortgage rates next 90 days
• Mortgage rate predictions
• Federal Reserve moves
• Mortgage rate trends
• Mortgage strategy for June
• Conventional, FHA, VA, and USDA rates
• Economic calendar
• Mortgage rates FAQ

Predictions for June

June will be a wild ride for mortgage rates. In short, our prediction is that rates are headed downward, with averages finally dropping below 3% for the first time ever by late-June or July.

That being said, the real world has a way of bucking expectations.

Fortunately, there’s no reason to bet on lower rates. As this is written, Freddie Mac reports a 3.28% average. Keep in mind that rates recently hit an all-time low of 3.23% and have not crept up much since then.

So today’s rates are essentially the best they’ve ever been.

The bottom line is that rates could go lower in June and July 2020, but why would someone place that bet when they could capture a best-ever rate right now?

Lock in today's rates before they rise. (May 28th, 2020)

Mortgage rates next 90 days

This chart shows past mortgage rate trends, plus predictions for the next 90 days based on current events and 2020 forecasts from major housing authorities.

Markets will focus on COVID-19 economic fallout

In the last 90 days, coronavirus and the disease it causes, COVID-19, has put entire nations on lockdown, slammed the stock market, and worst of all, created a serious health situation worldwide.

It also brought on the lowest rates of all time.

On April 30, 2020, Freddie Mac reported a 3.23% average 30-year mortgage rate. It was the second time in two months that rates had beat the long-standing record from November 2012.

Students of mortgage rate movements know that uncertain economic times often bring low mortgage rates.

That’s why shoppers should watch current events closely. No one knows how this situation will play out. The economy could recover quickly, and a post-quarantine boom could ensue. That might cause mortgage rates to rise quickly.

Or, the more likely scenario, the economy could struggle to recover. Never before has there been such a sudden and all-consuming lockdown of U.S. business. Even during the bleakest months of the 2008 panic, you could still walk into a local bakery and enjoy a muffin. But even something so simple is now unlikely, as many small and large businesses alike are closed or already out of business.

Here’s how dramatically unemployment claims skyrocketed during the first weeks of COVID-19.

Jobless claims jumped to 10 times their 2008-09 highs during the first weeks of COVID-19 lockdowns. Image: St. Louis Federal Reserve (annotations added).

Everyone is wondering whether the economic “full stop” will permanently damage the US economy. Is it possible to put everyone and everything on pause, then simply hit “play” later on?

The answer to that question is meaningful for mortgage rates. They could skyrocket upon a quick recovery, or plummet to new lows after systemic collapse.

Our advice: capture a once-in-a-lifetime mortgage rate now. Rates are already near 50-year lows. While we see a meaningful chance that rates will drop to new lows, there’s certainly no guarantee.

Our prediction: First-ever sub-3% average mortgage rates

History says mortgage rates should be about 2.85% right now.

Yes, you read that right: 2.85%.

But there are a couple reasons rates aren’t that low:

1. Lenders can’t handle the volume
2. Investors aren’t buying mortgages at the expected rate

For mortgage rates to be rock-bottom, there needs to be a huge demand from investors to purchase these low-3% and even high-2% mortgage bonds. Typically, investors buy mortgages as a safe-haven investment when the stock market is tanking.

But investors are hesitant because 1) they are afraid homeowners will refinance again, eliminating the earned interest and; 2) they are fearful of defaults and forbearance, as coronavirus threatens people’s jobs and businesses.

But in a few months, some things could happen to bring about another round of all-time-low rates.

Lenders volumes to ease

Lenders are swamped at the moment, and it could take another 60 days for them to clear pipelines of current business. But then what?

Well, then they have to keep business at a hot clip to support all the staff they just hired. Lenders will have no choice but to get competitive again, and another refinance boom will be underway.

Non-bank lenders will put price pressure on the “big guys”. Rate survey readings to plummet

Most of the big US lenders — Bank of America, Wells Fargo, Chase, and others — are artificially keeping rates high, especially on refinance transactions.

As of mid-May, Wells Fargo advertised a 4.0% (4.086% APR) 30 year fixed refinance rate, even though its purchase rate was 3.125% (3.246% APR). What’s going on?

There is simply too much demand for refinances at the moment. Lenders need to slow the flow. Plus, new refi applicants could refinance again in a few months as rates drop. That means banks and investors could lose money on these newly minted loans.

But aggressive players see the mayhem as an opportunity.

As I’m writing this, a major wholesale lender is offering 2.5% 30-year fixed-rate loan for purchase and refinance transactions. This lender says that rates below 3% are available to those who haven’t used them in the last 18 months.

We may see the “big guys” like Wells Fargo and Chase, well, “chase” these non-bank lenders to halt their market share gains. It will be a race to the bottom as aggressive lenders raise the bar — or in this case, lower it.

Reported rate averages — like those released by Freddie Mac each week — have never dipped below the 3% range. That’s because the agency surveys 125 lenders across the US to arrive at an average.

A solid portion of those lenders would have to offer rates in the 2s to finally bring the average down. But with aggressive players entering the market, the averages could fall below 3% for the first time ever.

Inflation vanishes overnight, helping the future of mortgage rates

Inflation is the enemy of mortgage rates.

And it appears that this enemy is running the other direction.

In May, the Bureau of Labor Statistics (BLS) released an astonishing reading of inflation. It showed that core consumer inflation — everything except volatile food and energy components — dropped 0.4% in April — the fastest inflation drop since BLS started tracking data in 1957.

The significance for mortgage rates can’t be overstated.

Investors won’t buy low-rate mortgage bonds when inflation is ticking up. If you buy a mortgage bond that pays 3% per year, but inflation is 4%, you’re losing money.

But if inflation is 1.4% per year — as it was in April — you could still afford to buy a 2% or 2.5% mortgage coupon and come out ahead.

Does this mean sub-3% mortgage rates are on the horizon? We think this factor is just another in the arsenal that will help rates head to fresh lows.

2.99% rates by July?

All of the above factors could work together to bring another round of brief but available all-time-low rates in about 60 days. June could set the stage for such a drop, offering very good rates itself.

But don’t expect these rates to hang around for long. We’ll see another round of overwhelmed lenders and spooked investors when the onslaught of applications ensues. (See the above chart for just how fast rates could rise.)

So what’s your strategy? If you’re refinancing, you may want to keep your file active and updated with your lender so you can lock and close the moment rates hit rock-bottom.

This will involve applying now, but floating until the opportune time. You may even want to supply all your income and asset documentation. However, hold off on ordering an appraisal until you lock. An appraisal is a non-refundable fee.

Lock in today's rates. Start here. (May 28th, 2020)

After cutting rates to near-zero, what will the Fed do next?

As recently as early February, everyone expected the Fed to maintain its federal funds rate of about 1.625% into 2021, then start hiking.

As COVID-19 worries gripped markets, the group slashed its rate by 1.5% to near-zero levels. In addition, it committed to buying unlimited amounts of Treasuries and mortgage bonds. It also started doing things it never had before, such as buying corporate debt.

You can see the drastic change in Fed forecasts comparing pre- and post-COVID-19.

In mid-March, we predicted never-before-seen stimulus from the Fed in April. But even we were surprised to see that stimulus checks and 12-month mortgage forbearance were part of the new reality.

The Fed has broad power to keep the economy going, and it’s getting more and more bold about using that power to its full extent.

Know this: the Fed will continue to support a low-rate environment. The exact form that takes could surprise us all.

Mortgage rate trends as predicted by housing authorities

Housing agencies nationwide are calling for rates in the low 3s for 2020. One major agency even calls for a sub-3% average rate by year-end.

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.

Mortgage strategies for June 2020

In June, be ready for an unexpected rate drop. We expect rates to stay above recent lows until about July, but there could be a dip sooner.

Apply early. Most homeowners were caught off guard the last time rates plummetted. They had to scramble to apply and lock in hopes of capturing ultra-low rates that were only around for a few days.

If you want to be ready this time, apply now, and submit all the necessary documentation like pay stubs, W2s, and bank statements. Don’t order an appraisal just yet. When rates fall through the floor, contact your lender and lock in. Then grant permission for the lender to order the appraisal.

Your loan file will be ready to close faster, and you’ll be ahead of the next wave of refinances.

Expect a tougher approval. Mortgage lenders have raised credit score minimums and discontinued certain loan programs. Jumbo loans and alternative-documentation loans are temporarily suspended at most lenders. Some have even halted FHA lending.

As a home buyer or refinance candidate, attempt to make your loan file as “vanilla” as possible: pay off debts, raise your credit score, and get your loan amount down to conforming levels.

Get started on your loan application here. (May 28th, 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 to negotiate for the lowest mortgage rate

Conventional loan rates

Conventional refinance rates and those for home purchases have trended lower in 2020.

According to loan software company Ellie Mae, the 30-year mortgage rate averaged 3.48% in April (the most recent data available), down from 3.65% in March.

This is higher than Freddie Mac’s 3.23% average because it factors in low credit and low-down-payment conventional loan closings, which tend to come with higher rates.

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 now have 20% equity, so you can refinance into a conventional loan 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 a 20% down payment to see your new payment without PMI.

Find a low conventional loan rate. Start here. (May 28th, 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 — 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 3.56% in April, a bit higher 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.

Find low FHA rates. Start here. (May 28th, 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 April (the most recent data available), 30-year VA mortgage rates averaged just 3.31% while conventional loans averaged 3.48%, 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.

Check today's VA loan rates. Start here. (May 28th, 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.

Find a lock low USDA rates. (May 28th, 2020)

Mortgage rates today

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

You might get 3.25% today, and 3.5% 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.

May 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.

• Monday, June 1: ISM Manufacturing
• Thursday, June 4: Initial Jobless Claims
• Friday, June 5: Nonfarm Payrolls, wages, unemployment rate
• Wednesday, June 10: Fed Meeting adjourns, statement released
• Wednesday, June 10: Inflation Rate
• Tuesday, June 16: Retail Sales
• Tuesday, June 16: NAHB Housing Market Index
• Wednesday, June 17: Housing Starts, Building Permits
• Monday, June 22: Existing Home Sales
• Friday, June 26: Personal Income, Personal Spending

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

Mortgage rates Q&A

In this FAQ:

• What are the current mortgage rates today?
• Will mortgage interest rates go down in 2020?
• Can you negotiate a better mortgage rate?
• Is 3.875% a good mortgage rate?
• Which mortgage company has the best rates?
• How much does 1 point lower your interest rate?
• How can I avoid paying closing costs?

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

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 (May 28th, 2020)  

Selected sources:

• https://www.elliemae.com/mortgage-data/origination-insight-reports
• https://tradingeconomics.com/united-states/calendar
• https://www.federalreserve.gov/monetarypolicy/fomccalendars.htm
• https://www.bls.gov/news.release/cpi.nr0.htm