Will mortgage rates go down in May 2021? Forecast and trends

Tim Lucas
The Mortgage Reports editor

Mortgage rates forecast for May 2021

Borrowers who locked a mortgage in April were happy to see rates take a tumble.

But will the trend continue in May?

Likely not. Economic recovery is marching forward, and with it, mortgage rates should continue to rise.

While we could see further low-rate blips in May, they’re likely to be short and impossible to predict.

As long as our economic outlook post-COVID is optimistic, interest rates should go higher.

So, unless you’re feeling pessimistic about recovery, now is a great time to lock your rate.

Find and lock a low mortgage rate (May 7th, 2021)

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Mortgage rates forecast next 90 days

This chart shows past mortgage rate trends, plus predictions for the next 90 days based on current events and 2021 forecasts from major housing authorities.

Chart showing mortgage rates predictions for the next 90 days, plus historical 30-year mortgage rates since 2019.
Lock in today's rates before they rise (May 7th, 2021)

Predictions for May 2021

Want to stay ahead of mortgage rate trends in May? Here’s what you should be keeping an eye on in the coming month.

Will mortgage rates go down in May?

Despite surprise rate drops in April — 30-year fixed rates fell to 3.04% on April 15 — mortgage rates seem bound to turn back upwards soon.

Why did interest rates fall in the first place? The short answer is that COVID is still driving uncertainty in financial markets. (More detail on this below.)

Yet recovery is forging on — creating a push and pull between pandemic concerns (which force rates down) and economic optimism (which generally means higher rates).

So, should you expect lower rates in May?

Possibly — but if they do happen, it will likely be a blip in an overall upward trend. We wouldn’t advise banking on lower rates for a sustained time.

In fact, rates for some borrowers have already risen. Reports with more up-to-date numbers than Freddie Mac put average rates above 3.20% on the same day as Freddie’s recent low.   

If you’re ready to lock a rate, sooner is better than later.

Find and lock a low rate (May 7th, 2021)

Why did mortgage rates fall in April?

In April, we were keeping an eye on a number of big economic reports: jobs and unemployment, inflation, and retail sales.

These reports are key indicators of how the economy is faring. And they can have a sizable impact on mortgage rates.

Stronger-than-expected economic readings are capable of causing significant rate spikes.

Worse-than-expected news should typically drive rates down.

As predicted, this month’s reports have been booming.

Jobless claims are down; retail sales got their biggest boost in a year while the services sector saw its strongest growth ever; and inflation rose more than expected as demand for goods and services continued to accelerate.

And yet — mortgage rates fell.

That’s the exact opposite of what should happen in a ‘normal’ market. So what’s going on?

Some agencies predict 30-year rates as high as 3.65% by the end of summer.

The simple answer is that this is not a normal market. COVID is still in the driver’s seat.

Around the same time we saw those strong inflation numbers – which could have caused a rate spike – concerns were mounting around potential side effects from the Johnson & Johnson vaccine.

Then the CDC and FDA officially put the J&J vaccine on pause, potentially slowing vaccine rollout across the U.S. (Although President Biden still believes there’s enough supply to get every American vaccinated by the end of May.)

Meanwhile, COVID cases are still high, even rising slightly as states begin to reopen more broadly. And concerns about new variants mean we’re far from being out of the weeds entirely.

Although the outlook has “brightened substantially,” as Fed Chair Powell said on 60 Minutes, “the principal risk to our economy right now really is that the disease would spread again.”

Expect the unexpected — but don’t wait for it

Continued pandemic risk means that for the foreseeable future, we can’t expect markets to behave like normal.

We’re still expecting higher rates throughout the year as the economic recovery is imminent.

Some agencies even predict 30-year rates as high as 3.65% by the end of summer.

However, COVID has been and continues to be unpredictable. Further vaccine delays or the spread of variants could drag down economic growth. And that could create spells of lower rates in the short-term.

As we said above, though — don’t count on it. Rates are far more likely to go up in May and the following months.

Lock in today's rates. Start here (May 7th, 2021)

Housing agencies nationwide are calling for rates in the low- to mid-3s through the third quarter of 2021.

Agency 30-Yr Rate Prediction
National Assoc. of Realtors 3.00%
Fannie Mae 3.10%
Freddie Mac 3.30%
Mortgage Bankers Assoc. 3.40%
National Assoc. of Home Builders 3.41%
Wells Fargo 3.65%
Average of all agencies 3.31%
Chart showing mortgage rate forecasts from major housing authorities. Rates should go up in May and beyond.

To sum it up, rate predictions vary widely.

Mortgage rates could stay near historic lows throughout the year. Or they could spike up to pre-2020 levels.

The Fed to keep its benchmark rate low until 2023

The Federal Reserve has a few levers with which to keep rates low in the economy.

Mortgage rates are most heavily affected by the Fed’s bond purchasing program. Throughout the pandemic, the Federal Reserve has been buying $40 billion worth of Mortgage Backed Securities (MBS) per month.

MBS prices drive mortgage rates, and the Fed’s injection of cash into this market pushed rates to their lowest lows in 2020.

Another, indirect method of rate suppression is for the Fed to keep its benchmark rate — the federal funds rate — near zero.

This rate level allows banks to borrow money at nearly no cost, which has a trickle-down effect on consumer borrowing and interest rates in general.

The Fed’s current rate-friendly stance is a boon for mortgage shoppers.

Federal Reserve forecast pre- and post-COVID. The Fed is predicting zero rate increases until at least 2023.

What does this mean for the personal finances of the average American consumer?

It means you’ll likely have access to ultra-low rates for years. Perhaps not as low as they are now, but very low from a historical standpoint.

Verify your new rate (May 7th, 2021)

Mortgage strategies for May 2021

With mortgage rates on the rise, here are the strategies we believe to be most important for home buyers and homeowners in the coming months.

High credit? Don’t be afraid to negotiate

Prime borrowers — those with high credit and 20% down — have an edge in the mortgage market.

You have your pick of lenders, loan programs, and mortgage rates. That’s a huge advantage you shouldn’t let go to waste.

One of the biggest mistakes you can make when refinancing or buying a house is going with the first offer you get.

On the day this was written, we saw one major lender offering 3.25% for a 30-year fixed-rate mortgage, and another offering 2.625% on the same loan type.¹

Rate shopping could save you around $1,200 per year on a $300,000 loan.

That’s a difference of 62.5 basis points — over half a percent!

Lowering your rate by 0.625% on a $300,000 loan could save you $100 on each mortgage payment; $1,200 per year; and $36,000 over 30 years.

In today’s rising rate environment, shopping for your best rate is doubly important.

Some lenders are still offering near-record low rates for the best borrowers, but you have to hunt for them.

You may even get lenders to compete for your business by showing an offer with a lower interest rate or fees and asking them to match it. But you won’t know until you try.

Find your lowest mortgage rate (May 7th, 2021)

Low credit? Make sure you check all your options

The past year has been tough for borrowers with less-than-perfect credit or non-traditional employment.

Lenders tightened up credit and income requirements to lessen their risk during COVID, putting some otherwise-qualified borrowers out of the running for financing.

Today’s mortgage market has even been described as a ‘no man’s land’ for those with credit scores below 700 or uncertain income.

However, things are beginning to look back up.

Mortgage credit availability has increased since the height of the pandemic — which means qualifying for a home loan is getting easier.

But not all lenders will return to pre-pandemic standards at the same pace.

What does that mean for you?

If you’re in the market for a low-credit or low-down-payment home loan, you should be prepared to apply with multiple lenders.

That’s especially true for borrowers with FICO scores below 700-720, or non-traditional income sources like self-employment.

Financing options are out there for qualified borrowers, but they may be harder to find.

So go in with the right mindset and don’t give up until you’re sure you’ve checked all your options.

Verify your mortgage eligibility (May 7th, 2021)

Use discount points to your advantage

Interest rates are rising, but savvy mortgage shoppers can still get a great deal.

Your first step is to shop with multiple mortgage lenders. Comparing rate quotes from at least 3 companies is the only ‘real’ way to find the best pricing.

But there are other ways to lower your rate, too.

Discount points give you the power to ‘buy down’ your mortgage rate by paying extra at closing.

Doing so isn’t cheap. You’ll typically pay 1% of your loan amount to lower your rate by 0.25%.

But the overall savings can far outweigh the cost of discount points if you plan to stay in your home for 5 years or more.

Have your lender show you loan options with and without discount points so you can compare the upfront cost vs. long-term savings and see if buying down your rate is worth it.

Buyers: It’s time to up the ante on offers

Low mortgage rates have made home buying more affordable for the average American. But they’re a double-edged sword.

With rates low and Americans returning to work, the market is oversaturated with buyers and undersupplied with homes.

Housing inventory fell to a record low at the end of February. And homes that hit the market are selling in record time — just 20 days on average.

That doesn’t mean you should give up hope, though.

It just means you need to get smart about making an offer.

Buyers in today’s real estate market need to be informed and well-prepared if they want to get an offer accepted on their dream home.

How can you improve your chances?

  1. Get pre-approved for a mortgage before you make an offer. This is an absolute must, as most sellers and agents won’t even look at an offer without a pre-approval letter
  2. Don’t bid your entire pre-approved amount right away. You might think you should make your strongest offer right off the bat. But if your first bid is for your entire pre-approved loan amount, you won’t have any wiggle room to counter with a higher offer
  3. Don’t include too many contingencies. Contingencies slow down real estate transactions. In a hot market, sellers are more likely to accept an offer with fewer contingencies, so limit yours to what’s absolutely necessary
  4. Don’t skip the home inspection. This might seem tempting as it could help you move faster on your purchase. But if you skip a home inspection, you might think you’re buying a turn-key home only to end up with a fixer-upper
Start your mortgage pre-approval today (May 7th, 2021)

Loan product rate updates

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 updates for specific loan types and their corresponding rates.

Conventional loan rates

Conventional refinance rates and those for home purchases are moving away from record-low territory, although they’re still at a low point historically.

According to loan software company Black Knight, the 30-year mortgage rate averaged 3.34% in March (the most recent data available), up significantly from around 2.9% in February.

Keep in mind, though, average rates account for all sorts of borrowers.

One of the advantages of a conventional loan is that borrowers with higher credit and bigger down payments are rewarded with lower rates.

So even in a rising rate environment, ‘prime’ borrowers can often still find great deals.

Lower-credit-score borrowers can use conventional loans, too. But these loans are best 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 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 percent down. Since then, home prices have skyrocketed.

Because of your higher home value, you now have 20 percent equity, which means you could 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 in any mortgage market. This mortgage calculator with PMI estimates your current mortgage insurance cost. Enter a 20 percent down payment to see your new payment without PMI.

Find a low conventional loan rate. Start here (May 7th, 2021)

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 mortgage loan than you would with a conventional one.

According to Black Knight’s Origination Market Monitor, FHA loan rates averaged 3.33% in March, a hair below the average conventional rate.

Another interesting stat from the report: The average FICO score for FHA home buyers is currently just 666, compared to 751 for conforming loan borrowers.

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

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

Find low FHA rates. Start here (May 7th, 2021)

VA mortgage rates

VA loans come with the lowest rates of all loan types according to Black Knight.

In March, (the most recent data available), 30-year VA mortgage rates averaged just 2.97% while conventional loans averaged 3.34%, representing a big discount if you’re a veteran or service member.

Homeowners with a current VA loan may be 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.

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

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 saving any additional funds.

VA mortgages are offered by local and national lenders, not by the government directly. Most active-duty members or veterans of the United States military can qualify.

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

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 7th, 2021)

USDA mortgage rates

Thanks to their backing from the U.S. Department of Agriculture, USDA mortgage rates are ‘below-market.’ That means you’ll typically get a lower rate with USDA than conventional financing.

And there are other benefits, too.

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.

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.

Like FHA and VA loans, the USDA program is for people who want to buy or refinance a primary residence; these loan programs aren’t for real estate developers.

Find a lock a low USDA rate (May 7th, 2021)

Mortgage rates today

While tracking monthly mortgage rate forecasts and weekly averages can be helpful, it’s important to know that rates change daily.

You might get 3.00% today, and 3.125% 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 30 days hold no shortage of market-moving news. In general, news that points to a strengthening economy could mean higher rates, while bad news from economists can make rates drop.

  • Friday, May 7: Nonfarm Payrolls, wages, unemployment rate
  • Wednesday, May 12: Inflation Rate
  • Friday, May 14: Retail Sales
  • Monday, May 17: NAHB Housing Market Index
  • Tuesday, May 18: Housing Starts, Building Permits
  • Wednesday, May 19: April FOMC Minutes
  • Tuesday, May 25: Existing Home Sales
  • Thursday, May 27: GDP Growth Rate, Pending Home Sales
  • Friday, May 28: 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

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

What are current mortgage rates today?

Mortgage rates as a whole are still at historic lows. But individual 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. 

Will mortgage interest rates go down in 2021?

Mortgage rates are more likely to rise than fall throughout the rest of 2021. 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 3.31% through 2021. 

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 3.5% a good mortgage rate?

Historically, it’s a fantastic mortgage rate. But, rates are currently hovering lower than this for well-qualified applicants. The average rate since 1971 is more than 8% for a 30-year fixed mortgage. To see if 3.5% 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 percent of your loan amount, or $1,000 for every $100,000 borrowed. Your interest rate could drop a quarter to a half a percentage point or more for each point paid. However, that can vary 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. 

What do 10-year Treasury bond yields have to do with mortgage interest rates?

Treasury yields and mortgage rates are not directly linked, but they are strongly correlated. 10-year Treasury yields and 30-year fixed mortgage interest rates tend to move in lock step with one another. That’s because both products are bought on the secondary market by the same types of investors.

Mortgage rates are higher than Treasury yields because mortgages are inherently more risky. Interest rates for mortgages are based on prices for mortgage-backed securities (MBS). The same factors that drive MBS up or down usually drive Treasuries up or down, hence the common misconception that Treasuries drive mortgage rates.

Why do interest rates decrease during times of economic volatility?

The Fed doesn’t set mortgage rates, but its economic policies influence mortgage markets. In times of economic uncertainty, the Fed promotes lower interest rates to encourage more borrowing which helps stimulate the economy. Lower rates can also raise home values which bolsters many Americans’ net worth.

Can I refinance even if my home is in forbearance?

If you entered into mortgage forbearance because of the coronavirus pandemic, you may be able to qualify for a refinance after exiting your forbearance plan. If you missed payments during forbearance, you’ll have to make three consecutive on-time payments before qualifying for a conventional refinance, according to FHFA’s rules.

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 (May 7th, 2021)

Selected sources:

  • https://www.blackknightinc.com/data-reports/
  • https://tradingeconomics.com/united-states/calendar
  • https://www.federalreserve.gov/monetarypolicy/fomccalendars.htm
  • http://www.freddiemac.com/research/datasets/refinance-stats/index.page

¹Source: http://www.mortgagenewsdaily.com/mortgage_rates/compare/ Date: April 15, 2021. Quicken Loans advertised 30-year fixed rate of 3.250% with 2.0 points. AmeriSave advertised 30-year fixed rate of 2.625% with 1.556 points. These rates are for sample purposes only. Your own rate will vary.