The trend towards rising mortgage and refinancing rates is likely to continue over the next few months. “Our long-term view on mortgage rates in 2021 is higher,” said Danielle Hale, chief economist at Realtor.com. “As the economic outlook improves thanks to advances in the fight against coronavirus and vaccines, as well as a dose of government stimulus, expectations for economic growth and inflation are rising, driving long-term bond rates higher.”
Long-term government bond rates are a key indicator of mortgage rates. The 10-year government bond yield hit its low in August 2020 and rose again to over 1.7% in March 2021. “Mortgage rates have fallen again while bond yields have risen because they were never properly valued during this crisis. We are however approaching a traditional bond and mortgage rate relationship, ”said Logan Mohtashami, housing data analyst for HousingWire. Going forward, this means that rising long-term bond yields should raise mortgage rates.
“Investors are realizing that inflation will not be a problem in 2021 and that it will not cause the Fed to reassess its approach to low interest rates anytime soon,” Evangelou said. Evangelou believes the economy is at a turning point, with an expected sharp surge in attitudes due to an increase in rates of another kind: increased vaccination and political support. For these and other reasons, she expects the 30-year mortgage rate to rise in May and end at around 3.1 percent before the calendar changes to June.
Greg McBride, CFA, Bankrate’s chief financial analyst, shares this theory. “Much of what we’ve seen in terms of better economic data and higher inflation has already been priced in, which translates into stabilizing and even falling rates in the face of some really strong economic data,” says McBride. “Even if mortgage rates rise again in the coming weeks, they will be much more modest than they were in the first few months of this year.”
When exactly interest rates rise and how much they will rise depends on a number of factors. How to deal with the pandemic and its impact on the economy is the main thing that we need to be careful about. But other factors, such as inflation and the Federal Reserve’s desire to keep rates low, also affect mortgage rates.
What seems like a small increase in rates can have a big impact on your bottom line. We have already seen rates rise by around 0.5% since the beginning of the year. For a 30 year home loan of $ 300,000, that growth added $ 81 to the monthly payment on this type of loan. Over the life of the same loan, that additional 0.5% costs more than $ 28,000 in additional interest, according to NextAdvisor’s mortgage calculator.
“Mortgage rates will rise rather than fall as the year progresses in 2021,” says Evangelou. “The economy is growing faster than expected as Americans get vaccinated and travel again. As consumers spend more, prices rise and interest rates are under pressure. “
She predicts mortgage rates averaging 3.5 percent by the end of the year. This roughly corresponds to the forecasts of other widely observed real estate companies. Fannie Mae and Freddie mac predict that the 30-year fixed mortgage rate will average 3.2 percent in 2021. The Mortgage Bankers Association expects interest rates to rise to 3.7 percent by the end of the year.