Mortgage Refinancing in 2021 - Reasons to Refi Before SpringPosted on Feb 18, 2021
It’s the question you should be asking: Is mortgage refinancing in 2021 worth it? It’s not exactly a secret that last year was a wild one for the mortgage industry, as rates hit record lows numerous times.
But if you haven’t already refinanced your mortgage or bought a home, the interest rates of yesterday aren’t as important as what they’re going to be. No one has a crystal ball when it comes to predicting future mortgage rates, but the general expert consensus seems to be that rates will likely start to climb in 2021.
Mortgage Refinancing in 2021: Rate Predictions for the Next 90 Days
Over the next 90 days, expect to see continued growth for mortgage and refinance rates. “Our long-term view for mortgage rates in 2021 is higher, and they seem to be on course to move in that direction over the next 90 days,” according to the chief economist for Realtor.com, Danielle Hale. “As the economic outlook strengthens, thanks to progress against coronavirus and vaccines plus a dose of stimulus from the government, this pushes up expectations for economic growth and inflation, driving long-term bond rates higher.”
Historically, long-term Treasury bond rates are a key indicator for mortgage rates. The 10-year Treasury yield bottomed out in August 2020 and climbed back up to 1.18% in February 2021. In other words, we are getting closer to a more traditional relationship with bonds and mortgage rates. Going forward, that will translate to rising long-term bond yields driving mortgage rates higher.
Economic recovery efforts and getting the population back to work are going to be heavily reliant on the new Coronavirus vaccine. “Mortgage rates should rise as we are in the early stages of getting our economy working again. We are early in the vaccination process, and over the next 90 days, that data should get better,” according to Logan Mohtashami, Housing Data Analyst at HousingWire.
It’s possible that mortgage rates could remain low if there is unexpected bad news surrounding COVID-19 or the vaccine distribution. The stock market could also impact rates. “We haven’t had a 10% plus correction [in the stock market] since March of 2020,” Mohtashami says. “[A drop in the stock market] will provide a rally in bonds, but should only be short term.”
Refinancing: Where Are Rates Headed in 2021?
Exactly when we’ll start to see rates begin to rise, and by how much, will depend on several factors: How we’re able to deal with the pandemic and its lasting economic impact is the main thing to watch. But there are other factors, like inflation and the Federal Reserve’s desire to keep rates low, that will also ultimately affect mortgage rates.
Looking ahead, here’s what industry experts are predicting will happen to mortgage rates in 2021:
Logan Mohtashami, Housing Data Analyst at HousingWire
According to an interview with Time Magazine, Mohtashami believes we’ll see the average mortgage interest rate inch upward in 2021, but maintains that it would be difficult to imagine it going above 4%. “We’re still in the thick of the COVID-19 pandemic,” he says. “The COVID-19 crisis was a deflationary event that sent bond yields and mortgage rates lower than they traditionally would have gone in a normal recession.”
Increases in mortgage rates will hinge on the health of the U.S. economy and how we handle the pandemic. “If we don’t execute on getting a vaccine, then mortgage rates could stay around these low levels,” Mohtashami says.
Lawrence Yun, Chief Economist with the National Association of Realtors
Yun forecasts mortgage rates to remain fairly stable in 2021. “In 2021, I think rates will be similar or modestly higher, maybe 3%,” he says. “So mortgage rates will continue to be historically favorable.”
However, Yun does think that the Federal Reserve’s actions are crucial to mortgage rates. “The Federal Reserve has indicated they want to pursue this low-interest rate policy for a long period, over the next two or three years,” he says. While the Federal Reserve doesn’t control mortgage rates directly, its actions have an indirect impact — and could help keep them low.
Danielle Hale, Chief Economist at Realtor.com
Hale predicts that low rates will continue through the first half of 2021. “Making any kind of prediction for next year is difficult. But our expectation is that mortgage rates start the year roughly in line with where they are now, and they stay fairly low — right around 3% — for the first half of the year,” Hale says, but that rates could rise in the second half of 2021. “Mortgage rates could approach 3.4% by the end of the year,” she says.
Of course, the year is still young. Any change we’ll see in mortgage rates this year will be tied to the broader economy. Experts are in agreement that an upward trend as we progress through the year is likely, so refinancing now, while rates are certain, could be a wise financial move.
Even a relatively small increase in rates can have a big impact on your monthly payment, and the interest you’ll pay over the remainder of your loan. For example, on a 30- year home loan of $300,000, an increase of 1%, from 2.7% to 3.7%, your monthly payment would increase by $164. Over the life of the same loan, that extra 1% will cost you an additional $59,159 in interest. Ouch.
If you’re in the market for a new home or are looking to refinance your current mortgage, we can help! Just keep in mind: Your interest rate isn’t the only thing to pay attention to when shopping for a lender. Carefully read each loan estimate to see exactly what fees you’ll be paying. The lender touting the lowest interest rate won’t always be the best deal.
If you have questions about the rate you qualify for or are ready to take advantage of the historically low rates, contact our Lending Department here at Team Lassen!