Mortgage interest rates forecast and trends: Will rates go down in October 2021?

Tim Lucas
The Mortgage Reports editor

Mortgage rate forecast for next week (October 17-23)

Between October 11-15, we saw mortgage rates increase sharply and then moderate towards the end of the week.

Next week (October 17-23) is light on economic news. So rates could hold steady in their current range.

Looking forward even further, rates should continue to rise in October, November, and December. Though the speed at which they increase will depend on Covid case trends, Federal Reserve actions, and the overall health of the U.S. economy.

Find your lowest mortgage rate. Start here (Oct 18th, 2021)

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Will mortgage rates go down in October? 

Mortgage rates have already increased in October. In just one week, the average 30-year fixed rate moved from 2.99% to 3.05% — its highest point since April. And rates should keep climbing throughout the month.

“As inflationary pressure builds due to the ongoing pandemic and tightening monetary policy, we expect rates to continue a modest upswing,” said Sam Khater, Freddie Mac’s chief economist, on October 14.

The Federal Reserve is another big driver behind current mortgage rate trends.

This week, we learned that the Fed plans to move forward with its ‘tapering’ plans this year, likely starting in November.  

That means the Fed plans to slow — and eventually stop — its mortgage stimulus program, which has been keeping rates low since 2020.

As the Fed’s plans solidify, they’re already being priced into current mortgage rates. So even though the Federal Reserve hasn’t actually changed any of its policies yet, rates are already going up on the expectation that it will.

The bottom line is that borrowers shouldn’t expect rates to fall in October.

Although we could see small rate drops from time to time, they’re likely to be temporary blips in an overall upward trend.

Get started shopping for mortgage rates (Oct 18th, 2021)

Mortgage interest rates forecast next 90 days

Mortgage rates seem set to rise over the next 90 days. It’s likely the Fed will start easing off its economic stimulus before the end of the year, which could cause mortgage rates to go up in November or December.

On average, major housing authorities predict that 30-year mortgage rates could go as high as 3.14% by the end of the year. Those would be the highest interest rates since April 2021, when rates spiked to 3.18%.

Mortgage rate predictions for late 2021

Housing experts and economists are split on how high mortgage rates will go before the end of the year.

Fannie Mae is still predicting average 30-year rates as low as 2.90% through the end of 2021, while Freddie Mac is forecasting an increase to 3.40%. The average agency prediction for 30-year mortgage rates is 3.14%.

Housing Authority30-Yr Mortgage Rate Prediction (Q4 2021)
Fannie Mae2.90%
National Assoc. of Home Builders2.96%
Mortgage Bankers Association3.10%
Wells Fargo3.20%
National Association of Realtors3.30%
Freddie Mac3.40%
Average Prediction3.14%
Find your lowest mortgage interest rate. Start here (Oct 18th, 2021)

The Federal Reserve and mortgage rates

Since the start of the coronavirus pandemic, the Fed has been buying $40 billion of mortgage-backed securities (MBS) per month. MBS are a type of bond that largely determines mortgage rates.

By injecting billions of dollars into the MBS market each month, the Fed has been keeping mortgage interest rates artificially low.

This was a temporary measure to keep the economy propped up during Covid. And now that we’re seeing a steady economic recovery, the Fed is getting ready to pull back on — and eventually stop — its mortgage stimulus program.

In fact, the Fed has already said there’s a good chance it will start tapering its MBS purchase program by mid-November. And mortgage rates should keep going higher as the Fed’s support is withdrawn.

Mortgage rates increased sharply this week. The average 30-year fixed rate rose from 2.99% to 3.05% according to Freddie Mac’s weekly rate survey.

Per the survey, 15-year fixed rates also rose from 2.23% to 2.30%. And the average rate for a 5/1 ARM rose from 2.52% to 2.55%.

January2.74%
February2.81%
March3.08%
April3.06%
May2.96%
June2.98%
July2.87%
August2.84%
September2.90%

Source: Freddie Mac

Overall, mortgage rates are still relatively close to their lowest levels in history.

The lowest 30-year mortgage rate ever was just 2.65%, recorded by Freddie Mac in January 2021. So anyone who can lock in at or near today’s mortgage rates is getting a fantastic deal on their home loan.

Also keep in mind that average rates are just that — averages. “Prime” borrowers with great credit and large down payments often get lower interest rates than the ones shown here. And borrowers with lower credit or fewer assets may get higher rates.

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.

August 2021July 2021June 2021
Conforming Loan Rates3.05%2.99%3.16%
FHA Loan Rates3.13%3.10%3.23%
VA Loan Rates2.73%2.64%2.80%
Jumbo Loan Rates3.02%2.97%3.10%

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 (Oct 18th, 2021)

Mortgage rate strategies for October 2021

Rates seem likely to rise in September 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.

Should I refinance now?

Refinance rates are still incredibly low. But economic movements in the next month could send rates on an upward trajectory. That means the low-rate refi window could be narrowing.

If you haven’t refinanced yet — but you’ve been considering it — now might be the time to get serious about deciding.

So, how do you know whether you should refinance now?

Mortgage advisor Arjun Dhingra shared a few tips on a recent episode of The Mortgage Reports podcast. He says now might be the time to refinance if:

  • Your current mortgage rate is 3.25% or higher
  • You need to lower your monthly mortgage payments
  • You want to pay off your home sooner
  • You need cash now and have enough equity to pull from

It might seem like ultra-low rates are the new norm. But, as Dhingra says, “inevitably, the music will stop.”

You can easily check your refinance eligibility and your new rate with a lender.

Check your refinance eligibility and rates (Oct 18th, 2021)

Considering a second home or investment property? Now might be the time

Earlier this year, Fannie Mae and Freddie Mac instituted a new rule that raised interest rates on investment property and second home loans.

But, as of mid-September, that rule has been put on hold.

That means home buyers can get cheaper financing on investment property and vacation home loans — at least for the time being. The rule is currently being reviewed, so there’s no guarantee it won’t eventually be put back in place.

With home values rising across the nation, it’s a smart time to consider buying an investment property. You could build home equity quickly while covering your mortgage payments via rental income.

Or you could cash-out home equity to purchase a vacation home.

U.S. homeowners currently have a record amount of equity and a cash-out refinance or home equity loan can put those dollars to work.

Save more by shopping around

Mortgage lenders are still offering near-record low rates to good borrowers. But there’s a catch.

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.

Compare mortgage and refinance rates. Start here (Oct 18th, 2021)

Mortgage interest rate FAQ 

What are current mortgage rates?

Current mortgage rates are averaging 3.05 percent for a 30-year fixed-rate loan, 2.30 percent for a 15-year fixed-rate loan, and 2.55 percent for a 5/1 adjustable-rate mortgage, according to Freddie Mac’s latest weekly rate survey. Your own rate could be higher or lower than average depending on your credit score, down payment, and the lender you choose to work with, among other factors.

Will mortgage rates go down next week?

Mortgage rates shouldn’t move dramatically next week (October 17-23, 2021). There was a lot of movement between October 11-15, as the FOMC minutes from September’s Federal Reserve meeting were released and a new Core Inflation report came out. But next week should be quieter in terms of economic news and interest rates.

Are mortgage rates expected to drop in 2021? 

Mortgage rates are not expected to drop by any significant amount in the remainder of 2021. However, if the Covid cases continue to worsen due to the Delta variant, this could drag down the U.S.’s economic recovery. Any significant slowdown could push mortgage rates lower, or at least help to keep them in the sub-3 percent range throughout the fall.

Will mortgage interest rates go up in 2021?

Yes, mortgage rates are likely to increase in 2021 and next year. Most economists and housing authorities are predicting 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 lowest 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 lower rates in the 2 percent range, while poor-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 (Oct 18th, 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