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2021 Mortgage interest rates forecast: Are we done seeing record lows?

Erik J. Martin
The Mortgage Reports contributor

Will mortgage rates rise or fall in 2021?

Leading housing agencies are expecting an average 30-year mortgage rate of 3.03% in 2021.

That’s pretty incredible.

Until 2020, the lowest 30-year rate on record was 3.29%. Now, experts are saying interest rates could remain well below that for a year or more to come.

This bodes well for home buyers and refinancing homeowners next year. Low rates mean expanded buying power, cheaper monthly payments, and huge savings.

But remember, there’s always volatility in the mortgage market. 

Don’t hinge your home buying or refinancing plans on a favorable prediction. If you’re ready to lock a rate now, it’s a great time to do so.

Check your rates today. Start here (Dec 2nd, 2020)

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Mortgage interest rates forecast for 2021

We looked at 30-year mortgage rate forecasts for 2021 from six industry leaders: Fannie Mae, Freddie Mac, the Mortgage Bankers Association, the National Associations of Realtors and Home Builders, and Wells Fargo.

All in all, their mortgage rates forecasts were favorable, averaging just 3.03% for next year.

Agency 30-Yr Rate Prediction
Fannie Mae 2.80%
Wells Fargo 2.89%
Freddie Mac 3.00%
National Assoc. of Home Builders 3.00%
National Assoc. of Realtors 3.20%
Mortgage Bankers Assoc. 3.30%
Average of all agencies 3.03%

Of course, this is a tick above current mortgage rates. 30-year fixed rates were averaging 2.80% at the time of writing, according to Freddie Mac’s weekly survey.

Does that mean rates are done falling, as they’ve done throughout 2020? Could it mean rates are about to rise?

Well, that depends on who you ask.

Record-low mortgage rates may be gone already  

When looking at current interest rates and mortgage rate predictions, it’s important to understand that different sources report on various data sets.

As such, economists and news outlets can be reporting very different stories about mortgage rates at the exact same time.

To give just one example, Matthew Graham of Mortgage News Daily has been reporting for some time that Freddie Mac’s weekly averages — which set new record lows 11 times in 2020 — are misleading.

To summarize Graham’s argument, he says Freddie Mac’s record-setting rates are “hopelessly inaccurate” for two reasons:

  1. Freddie Mac’s survey collects rates Monday through Wednesday but reports them on Thursdays. This can lead to inaccurate ‘averages,’ as rates may have swung upward or downward after many lenders report. (Remember, mortgage rates change daily)
  2. Freddie Mac only reports on home purchase rates. But in the current market, refinance rates are quite a bit higher than purchase rates, mainly due to the FHFA’s new Adverse Market Refinance Fee which has upped refinancing costs on conventional loans 

According to Graham, mortgage rates hit their “actual all-time lows” sometime in August and have generally been rising since then.

A quick look at 10 major lenders1 supports this theory, with their 30-year refinance rates averaging 3.22% on the day this was written — substantially higher than Freddie Mac’s “new record low” of 2.80% from last week.

But don’t worry: This doesn’t mean you missed out on sub-3% mortgage rates just yet.

Find a low rate today (Dec 2nd, 2020)

The reality of “rising” and “falling” mortgage rates

We don’t mention rising mortgage rates to worry you — but rather, to frame today’s mortgage rate predictions in a more even-keel way.

When Freddie Mac’s survey is reporting record-low rates each week, some mortgage shoppers feel pressured to buy or refinance right away before those amazing low rates vanish.

On the flip side, some may be waiting for rates to fall again, as they seem determined to keep pushing downward.

But the reality is that rates have been hovering at a very similar level — around or slightly below 3.0% — for months now.

As always, some borrowers will get lower rates than the ‘averages’ seen in the news, and some will get higher rates.

That’s because your own interest rate doesn’t just depend on the market — it depends on who you are as a borrower.

Take advantage of current low rates, even next year

The fact that rates are based on your personal profile can actually be an advantage for borrowers.

It means that if rates start to move upward, even by a half or full percentage point, the near-record lows we’re seeing now may still be available to some.

Who gets below-market rates? Generally, it’s borrowers who have:

  • A credit score of 720 or higher
  • A clean credit report
  • A down payment of 20%
  • A low debt-to-income ratio
  • A home price within local loan limits

And you need to be willing to shop around to find the lowest rate. If you source rate quotes from multiple lenders, it’s even possible to get lenders to compete for your business and lower either your interest rate or loan costs.

Also keep in mind that the ‘average’ rates reported are generally for conventional mortgage loans — those backed by Fannie Mae and Freddie Mac.

Government-backed mortgages, including FHA, USDA, and VA loans, almost always have a lower average rate than conventional loans. 

This means ultra-low rates aren’t limited to borrowers with stellar credit and huge down payments.

In today’s market, it’s possible to lock in a low rate and monthly payment even if you have moderate credit and little out-of-pocket cash.

Check your home loan eligibility at today's rates (Dec 2nd, 2020)

What to keep in mind if you want to buy a house or refinance in 2021

The pandemic and a possible COVID vaccine

It’s no secret that the coronavirus pandemic has been the main driver behind low mortgage and refinance rates this year.

Economists could never have predicted a worldwide pandemic would strap the U.S. economy and force the Fed to lower borrowing costs. But that’s exactly what happened.

And while mortgage rates are not set by the Federal Reserve, they do follow trends in the broader interest market. In uncertain times like these, rates tend to fall across the board in an effort to stimulate borrowing and keep the economy afloat.

In this — yes — unprecedented­ situation, the Fed has stated it intends to keep its target interest rate near zero as the U.S. economy slowly recovers.

If a vaccine becomes available on a wide scale, current mortgage rate trends could reverse quickly.

That means mortgage rates are likely to stay low too, maybe for years to come.

But a safe and effective COVID vaccine could shake things up in the mortgage world.

If a vaccine becomes available on a wide scale, interest rate trends could reverse quickly. Current mortgage rates could rise as markets stabilize and start to improve.

For home buyers and refinancers, it will be important to keep an eye on these developments in the coming year.

If it looks like a viable vaccine will become reality at any point, it might be time to get serious about locking a mortgage rate.

The housing market and available inventory

This applies to home buyers rather than refinancers.

Throughout 2020, housing inventory has remained incredibly tight. This pushes home prices up and increases bidding competition.

For buyers, low inventory has created a sort of push and pull: Low rates mean home buying is more affordable, and borrowers can afford larger homes. But low inventory means homes are more expensive and harder to get.

If rates do rise in 2021, it could potentially stem the tide of home buyers — giving builders a chance to catch up with high demand. And it may reduce competition for existing homes.

But, a higher rate also decreases home buying power and increases monthly mortgage payments. These are all things to keep in mind as you continue your home search into 2021.

The presidential election

Presidents don’t set mortgage rates. However, they do set the tone for the economy, which has an indirect effect on whether mortgage rates rise or fall.

That’s why historically, there’s been a lot of interest rate volatility in election years.

The experts we interviewed had varying opinions on how much a Trump or Biden win could impact mortgage rates — if at all.

But looking at their predictions on average, there was one clear trend: Experts predict lower rates if Trump is reelected, and slightly higher rates if Biden wins. 

Mortgage rate predictions after the November election

2020 Election Winner Average 30-year Mortgage Rate Prediction
Trump 3.09%
Biden 3.51%

Read on to see why the industry experts we interviewed believe rates could rise or fall based on the outcome of the election.

Find and lock a low rate (Dec 2nd, 2020)

Expert mortgage rate and housing market predictions for next year

We reached out to 10 trusted real estate experts for their 30-year fixed-rate mortgage and real estate market forecast following the 2020 presidential election.

These predictions may help guide you if you’re planning on purchasing a home or refinancing before the end of the year or in 2021.

Dennis Shirshikov, real estate analyst, mortgage rate prediction: 3.5%-4%

Dennis Shirshikov is a real estate analyst with RealEstateWitch.com and adjunct professor of economics at City University of New York.

Mortgage rate prediction if Trump wins: 3.5%

If Trump wins the election: “If Trump wins, the real estate market will slow down, but prices will rise. Housing policy will favor investors and landlords through tax discounts. The Fed will raise interest rates, and mortgage rates will also rise.”

Mortgage rate prediction if Biden wins: 4%

If Joe Biden wins the election: “The real estate market overall will slow down and prices will remain stable. Housing policy will seek to make lending more lenient. The Federal Reserve will raise interest rates, and mortgage rates will rise as well.”

Bruce Ailion, Realtor, mortgage rate prediction: 2.5%-3%

Bruce Ailion is a real estate attorney and Realtor.

Mortgage rate prediction if Trump wins: 2.5%

If Donald Trump wins the election: “Real estate is Donald Trump’s favorite industry. Conservative or liberal, like him or hate him, agree with everything or nothing he does, Trump is the ultimate cheerleader for real estate. If he wins, you have an advocate for lower interest rates, lower taxes, and lower regulation.”

Mortgage rate prediction if Biden wins: About 3%

If Joe Biden wins the election: “The impact of a Biden win on real estate is less certain. We could see a further reduction in the mortgage interest rate deduction, and the same could be true for the deductibility of state, local and property taxes. I expect interest rates to remain low but not as low as in a Trump presidency.”

Rick Sharga, Executive VP at RealtyTrac, mortgage rate prediction: 3.25%-3.5%

Rick Sharga - Mortgage Rate Predictions 2019 from The Mortgage Reports

Rick Sharga is the executive vice president at RealtyTrac.

Mortgage rate prediction if Trump wins: 3.25%

If Donald Trump wins the election: “A second Trump term will likely see very similar policies to what we saw in the first term: less regulatory control and tax incentives to stimulate real estate investment.

“The Trump administration has also discussed an expansion of the Qualified Opportunity Zone program it launched a few years ago, which offers capital gains relief for real estate development in underserved communities.

“The Fannie Mae and Freddie Mac conservatorship will likely end in a second Trump term. This could make loans more readily available for more borrowers but could also make loans more expensive and somewhat riskier.”

Mortgage rate prediction if Biden wins: 3.5%

If Joe Biden wins the election: “Biden has called for more government investment in affordable housing, which could be funded in part by proceeds from fees attached to home sales backed by government agencies like Fannie Mae, Freddie Mac, and the FHA.

“This would make buying a home somewhat more expensive for most people, but might also provide affordable rental properties to people currently rent-burdened.

“It’s also likely that Biden would reinstate some of the regulations and consumer protections in the financial industry that had been removed or eliminated over the past few years.”

Find and lock a low mortgage rate (Dec 2nd, 2020)

Ryan Craft, CEO at Saluda Grade, mortgage rate prediction: 3.25%

Ryan Craft is the founder and CEO of Saluda Grade, a real estate advisory firm.

Mortgage rate prediction if Trump wins: 3.25%

If Donald Trump wins the election: “A Trump win will mean the continuation of the status quo — broad support for eviction moratoriums, executive office support for personal subsidies and relief, and an administration that overall seems willing to do anything to soften the blow on the economy.”

Mortgage rate prediction if Biden wins: 3.25%

If Joe Biden wins the election: “Biden most likely will not change much regarding eviction moratoriums and the broad forbearance mandate for COVID-affected homeowners. There will be very little change in the current status of the American housing market and the greatest area of impact: supply.”

Kurt Westfield, Managing Partner at WC Equity Group, mortgage rate prediction: ±3%

Kurt Westfield is Managing Partner at WC Equity Group.

Mortgage rate prediction if Trump wins: About 3%

If Donald Trump wins the election: “Trump will recover losses that coronavirus brought forth and will rapidly restore the position the economy was in before this black swan event. The Fed will likely raise rates to keep excesses at bay. The looming concern is the wave of foreclosures and evictions likely to occur when the moratorium and freezes are lifted.”

Mortgage rate prediction if Biden wins: Higher than 3%

If Joe Biden wins the election: “There will likely be less strength in the housing market, as a whole, as subsidies are enacted that try to shorten the gap between lower-income and high-net-worth individuals.

“The creativity in the private capital world will likely dry up, causing the investment side of housing to stall while the residential side of homeownership likely stays relatively constant. Rates will go up, as will taxes.”

Ryan Fitzgerald, Owner of Raleigh Realty, mortgage rate prediction: 3.25%-4%

Ryan Fitzgerald is a Realtor and the owner of Raleigh Realty and UpHomes.

Mortgage rate prediction if Trump wins: 3.25%

If Donald Trump wins the election: “We will see a lot of what we’ve observed the past four years, with lower interest rates and the opportunity to afford more and leverage more of the government’s and bank’s money. Housing policies are likely to remain the same or similar to what they are now. Interest rates should stay low or possibly go lower.”

Mortgage rate prediction if Biden wins: 4%

If Joe Biden wins the election: “We will see a decent year or two under Biden as it relates to the real estate market overall. However, smart money will begin to sell properties so they don’t have to pay the hefty taxes on homes and the land values that accompany them. Land is likely to become significantly cheaper under Biden, thanks to property tax rate increases. Interest rates will rise along with property taxes.”

Guy Baker, Founder of Wealth Teams Alliance, mortgage rate prediction: 3%-4.1%

Guy Baker is an author and the founder of advisory firm Wealth Teams Alliance.

Mortgage rate prediction if Trump wins: About ~3%

If Donald Trump wins the election: “The economy will likely improve, taxes will stay the same or reduce, and the inflation rate will continue to increase. The Fed is less likely to raise rates unless inflation gets out of control.”

Mortgage rate prediction if Biden wins: 4.1%

If Joe Biden wins the election: “Expect tax rates to rise, the Fed to offset increasing inflation with higher rates, and the economy to slow. All of this will dampen the demand for real estate.”

John Thompson, Dean on the National Institute of Financial Education, mortgage rate prediction: high 2%-low 3%

John Thompson is the founder of C2 Financial Corporation and Dean of the National Institute of Financial Education.

Mortgage rate prediction if Trump wins: High 2% to low 3% range

If Donald Trump wins the election: “We may see more accommodative policies toward the retention and growth of real estate-based assets, which would tend to favor investors as opposed to single-family home buyers. Entry-level points of the market will continue to be strong and robust, and in the upper ends of the market we may see challenges in value and a reduction in prices.”

Mortgage rate prediction post-election: High 2% to low 3% range

If Joe Biden wins the election: “The government may have a more accommodative position toward elements of the housing market when it comes to low- to moderate-income. These areas would likely see greater support, with negative impacts on higher-priced real estate, as higher-income properties are seen as a tax opportunity.”

Find and lock a low mortgage rate (Dec 2nd, 2020)

Daryl Fairweather, Chief Economist, Redfin, mortgage rate prediction: N/A

Daryl Fairweather is Chief Economist for Redfin.

Housing forecast if Trump wins: Less development of affordable housing

If Donald Trump wins the election: “While the Trump administration previously advocated for relaxing zoning regulations to encourage more building, President Trump has recently made an about-face — now arguing that local governments that have taken steps to relax or eliminate single-family zoning are threatening the suburbs.

“Given this shift in tone, we can assume that a second-term Trump administration will not be enthusiastic about developing more affordable housing.”

Housing forecast if Biden wins: More development of affordable housing and strengthening of Fair Housing rules

If Joe Biden wins the election: “Biden’s housing platform involves using federal housing grants to encourage states to implement inclusionary zoning that would allow more affordable housing development.

“Biden has proposed plans to reduce discriminatory practices in the housing industry and would reinstate the Obama-era Affirmatively Furthering Fair Housing rule, recently terminated by President Trump.”

Natalie Campisi, senior mortgage and housing expert at Forbes Advisor, mortgage rate prediction: N/A

Natalie Campisi is a senior mortgage and housing expert at Forbes Advisor.

Housing forecast if Trump wins: Loosening of Fair Housing rules and less support for affordable housing

If Donald Trump wins the election: “Expect to see rules around fair housing loosen. Trump’s recent action that repealed the Affirmatively Furthering Fair Housing rule, which was designed to ensure that municipalities receiving HUD dollars were taking direction action against discriminatory housing practices, is indicative of this.

“Furthermore, stringent zoning laws — that have hobbled construction in many states — will likely get no help from Trump as he has made several remarks about saving the suburbs from low-income housing.”

Housing forecast if Biden wins: Expanded access to affordable housing and aid for renters

If Joe Biden wins the election: “Biden has a broad housing plan that would touch the lives of almost all Americans. He has proposed to expand the housing voucher program, which helps the poorest American secure housing.

“He would also curb single-family zoning for entities that receive HUD dollars. Biden would further enact legislation that allows renters who pay more than 30 percent of their income and housing to get a tax deduction.”

Why presidential elections impact mortgage and refinance rates

You may not think that a presidential election would affect your ability to purchase a home. But the experts say it could have an impact on housing, even in small ways.

“The presidential election and its results generally affect the real estate market indirectly — but not insignificantly,” says Sharga.

He explains: “The incoming administration’s policies will generally have an impact on the economy and people’s financial outlook.

“For example, an administration that comes into office with plans to dramatically increase government spending can cause interest rates to go up, making buying a home less affordable.

“On the other hand, an administration touting tax cuts might entice businesses to invest in future growth and hire more employees — a cycle that often leads to those employees buying homes,” Sharga says.

“The presidential election and its results generally affect the real estate market indirectly — but not insignificantly” —Rick Sharga, Executive Vice President, RealtyTrac

Natalie Campisi, senior mortgage and housing expert at Forbes Advisor, notes that mortgage rates are not set by the president but can be indirectly influenced by presidential actions.

“The president can also influence the housing market in a number of other ways apart from mortgage rates,” she says.

“For instance, Trump’s tariffs on Canadian lumber have driven up the cost of building materials, which has put more burden on new housing construction.”

The gap in fiscal and economic policies between Joe Biden and Donald Trump is a wide one.

Whoever wins will have significant repercussions on the way Wall Street and Main Street view the economy looking ahead, believes Kurt Westfield.

“Each candidate’s tax plans and job growth agendas will play a large role in the stagnation or continued growth of the economy overall, which can affect interest rates and the housing market,” says Westfield.

When is the right time to lock a mortgage or refinance rate?

If you want to buy a house or refinance in the coming months, your decision on when to move should depend on your financial readiness. 

It’s never a good idea to rush into a mortgage or refinance if you’re not quite ready. So if you’re still getting your finances and credit in order, it’s ok to wait. 

Rates may stay low for a long time. But even in a worst-case scenario — say rates rise to 4%, the highest prediction we received — they’ll still be lower than nearly all of U.S. history.

In other words, those waiting to turn in their mortgage application likely aren’t putting too much at stake. 

For homebuyers and refinancers who are already in the process, our advice remains the same: Don’t wait for rates to fall further before locking, because they’re not likely to move down a significant amount. 

Mortgage and refinance rates are already near record lows, and those who can lock at today’s rates are in a very good position.

Verify your new rate (Dec 2nd, 2020)

1Current refinance rates sourced on October 28, 2020 from Wells Fargo, Bank of America, Chase, Quicken Loans, US Bank, PNC, CitiBank, Better Mortgage, NBKC, and SunTrust (now Truist). Advertised rates are based on an excellent credit score and may include discount points. Your own refinance rate will be different.