April 2018 mortgage rates forecast (FHA, VA, USDA, Conventional)

Mortgage rates forecast for April 2018

Just months into the year, mortgage rates have already met 2018 predictions.

In late 2017, when thirty-year fixed rates were still in the high-3s, economists put rates in the mid-4s this year.

It didn't take long.

Rates approached 4.4% by mid-February and shot past 4-year highs.

Fortunately, rates are still low by historical standards, and today's rates have not deterred home buyers. Home sales are up 1.1 percent from a year ago according to the National Association of Realtors.

Still, it's no time to sit by and hope for a massive rate drop, the chances of which are slim to none. Rates available now are likely the best we'll see in 2018, despite the recent push upward.

Verify your new rate (Apr 26th, 2018)

Freddie Mac: Mortgage rates at highest levels in more than 4 years

Mortgage rates just broke a barrier not surpassed in 220 weeks.

Since January 2014, rates had remained below 4.45%, that is, until the late stages of March, according to mortgage agency Freddie Mac.

The 30-year fixed rate average is up 67 basis points, or 0.67%, compared to lows reached in September.

What does that mean for the home buyer or refinancing homeowner? A lot.

Home buyers will pay over $100 more per month for a $350,000 home with 10% down, according to this mortgage payment calculator.

A homeowner looking to refinance may discover that the new loan may not yield any savings at all.

Locking in today yields a rate better than could be had by 85% of homeowners in history.

But there is a bright spot. Rates are only high compared to some of the lowest levels ever recorded. If you had offered a 4.45% rate to a home buyer ten years ago, they would have jumped at the chance

(The 30-year rate eclipsed 6.5% in 2008).

Looking at the entire 2,450 weeks Freddie Mac has been recording data, only 350 weeks offered mortgage rates lower than today's levels. That means locking in today yields a rate better than could be had by 85% of homeowners in history.

Mortgage rates already approaching predicted 2018 levels

Most major housing agencies and groups predicted higher rates for 2018. But no one saw rates approaching these levels in the first 120 days of the year.

Following are rate predictions cast as 2017 came to a close:

• Mortgage Bankers Association: 4.6%
• Fannie Mae / Freddie Mac: 4.5%
• Realtor.com: 4.6% average, reaching 5% by year-end
• National Association of Realtors: 4.5%
• Kiplinger: 4.4%
• National Association of Home Builders: 4.34%

Rates have already exceeded two of the six predictions, and the other four are not far off.

Many people are asking "Why are mortgage rates rising?"

The economy has made a near-full recovery since almost a decade ago when the housing downturn took its toll.

Unemployment topped out at 10% during the Great Recession but now sits in the low 4s. The stock market is booming, and housing prices are rising, too.

Mortgage rates were, and perhaps still are, "too low."

Interest rates usually rise when the economy is doing this well. In the summer of 2007, in the midst of the last boom, 30-year rates neared 6.75% according to Freddie Mac. The boom prior to that — in 1999 — offered rates above 8%.

It's shouldn't be much of a surprise that rates are now rising. If economic expansion continues, we could easily see 5% rates in 2018.

Verify your new rate (Apr 26th, 2018)

Conventional loan rates

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

The Freddie Mac report described above asks lenders about conventional rates, but not ones for FHA, USDA, or VA loan types.

Yet those programs are worth looking into if you have a small down payment or damaged credit.

Conventional loans, however, are more suited for those with decent credit and at least 3% down (but preferably 5% due to higher rates that come with lower down payments).

Twenty percent in equity is preferred when refinancing.

With adequate equity in the home, a conventional refinance can pay off any loan type. These loans can even cancel mortgage insurance.

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.

Depending on your original home price and loan amount, 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.

Learn more about conventional refinance loans here.

Verify your conventional loan eligibility (Apr 26th, 2018)

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.

According to loan software company Ellie Mae, which processes more than 3 million loans per year, FHA loan rates averaged 4.51% in February, while conventional loans averaged 4.52%.

(You might wonder why Ellie Mae reports higher average rates than does Freddie Mac. It's because Ellie Mae considers loans at all credit and down payment levels, whereas Freddie Mac averages rates for the "perfect scenario.")

So, even with damaged credit, you can get a great rate. Another interesting stat from Ellie Mae: 33% of all FHA loans are issued to applicants with scores below 650.

And even though these loans come with mortgage insurance, the overall monthly cost is not that much more than for conventional loans.

Check your future home payment with an FHA mortgage with this FHA loan calculator.

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 have fallen since you received your loan.

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

Learn more about the FHA streamline refinance here.

Verify your FHA loan eligibility (Apr 26th, 2018)

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.

Learn more about the VA streamline refinance here.

But don't overlook the VA loan for home buying. It requires zero down payment. That means if you have 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 gives consumers the best of both worlds: strong government backing and the convenience and speed of a private company.

These loans don't require a high credit score. In fact, most lenders will accept scores down to 640, or even lower in some cases. 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 February, 30-year VA mortgage rates averaged just 4.24% while conventional loans averaged 4.52%

Check how much you would pay for a home with this VA loan calculator.

There's incredible value in VA loans.

Verify your VA loan eligibility (Apr 26th, 2018)

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.

Verify your USDA loan eligibility (Apr 26th, 2018)

Mortgage rates today

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

You might get 4.4% today, and 4.5% 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.

Mortgage rate predictions for April 2018

There is no shortage of market-moving news in April. Developments are forming now that will impact the remainder of the year.

Verify your new rate (Apr 26th, 2018)

The Fed is at it again

The Federal Reserve raised interest rates for the sixth time since the end of the Great Recession at its meeting ending March 21.

The group credits the move to a strong economic outlook.

Why does the Fed raise rates? Because it's worried about inflation. If the economy overheats, feeding off of ultra-low rates, prices on goods and services could skyrocket.

The Fed's job is to strike a balance between economic health and stable prices. The federal funds rate is its lever of choice to control both forces.

So why do mortgage rates go up when the Federal Reserve raises its rate? Well, sometimes they don't. It's a myth that the Fed controls mortgage rates.

But markets look to the Fed like an outdoor wedding planner tunes into the weatherman. It is the foremost authority in predicting the future rate environment. When the Fed hikes rates, it means the economy is on the upswing.

Markets look to the Fed like an outdoor wedding planner tunes in to the weatherman.

A hot economy promotes higher inflation and a more profitable stock market, both of which are bad for mortgage rates.

The Fed is predicting sunny skies, so to speak, for the economy. It raised its forecast for Gross Domestic Product for 2018 from 2.5% to 2.7% and raised its 2019 expectation by an even greater amount.

Additionally, the group predicted one more rate hike between now and the end of 2019 than it had previously. Markets are getting the hint: the economy is doing well, and interest rates are rising as a result.

As a mortgage shopper, it could be a wise move to lock in today's rates, which are still historically low. The chances of a significant downswing are getting smaller and smaller.

Verify your new rate (Apr 26th, 2018)

Wages are up. That could spark inflation. Inflation hurts mortgage rates

Americans are making more money.

And, surprisingly, there's an unexpected relationship between wages and mortgage rates.

When the economy does well, companies must pay more to retain and attract workers. That sounds good, and is for most people. Except for those shopping for mortgages.

That's because higher wages mean companies pass on those costs. Prices go up on everything from milk to bulldozers. That's the definition of inflation.

Inflation is bad for mortgage rates because it eats into investor returns on fixed-rate investments like mortgage bonds. When prices rise, mortgage-backed securities become worth less and less. So interest rates on those assets must rise to keep investors buying.

Higher rates on mortgage-backed assets are passed onto the mortgage shopper.

Economists are watching recent upticks in wages as a good indicator of future inflation.

In January, wages crept up 2.9% from a year earlier. That the fastest gain since the last economic boom.

Investors have taken notice: inflation is headed higher, and interest rates on mortgage-backed assets must rise as well.

$1.5 trillion infrastructure plan revealed

A massive spending bill was rolled out in February, and impacts on mortgage rates will last through 2018.

The Trump administration wants to fix the country's failing infrastructure with a program that's not exactly cheap.

Currently, most of the government runs on borrowed money, so introducing extra spending measures always means borrowing more.

The way the U.S. government borrows is by issuing bonds.

Mortgage rates are based on a type of bond. So a bond-flooded market could mean higher rates on those assets to keep investors buying.

In short, mortgage rates rise when the government borrows more.

It's unclear how much rates could rise as the plan progresses. But the plan moving forward is already making its impact on rates.

This month's economic calendar

The next thirty days hold no shortage of market-moving news.

• Friday, April 6: Employment Situation, wages
• Wednesday, April 11: Consumer Price Index (a key inflation gauge)
• Wednesday, April 11: Federal Open Market Committee meeting minutes
• Tuesday, April 17: Housing Starts
• Monday, April 23, Existing Home Sales
• Friday, April 27: GDP

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

What are today's mortgage rates?

Despite recent upticks, mortgage rates are holding historically low. Now could be the time to lock in, while rates in the mid-4s are still available.

Get a personalized mortgage rate analysis to see how much you can save.

Verify your new rate (Apr 26th, 2018)

 

Selected sources:

• https://www.cnbc.com/2018/03/21/fed-hikes-rates-by-a-quarter-point-at-chair-powells-first-meeting.html
• https://www.bloomberg.com/markets/economic-calendar
• https://www.federalreserve.gov/newsevents/pressreleases/monetary20180321a.htm