What to Expect from Mortgage Rates in 2021

Whether you are planning to purchase real estate in 2021 or you want to reap the benefits of a refinance, it may be advisable to act earlier in the year. While the Mortgage Bankers Association accurately predicted that new mortgage application volume would be high in 2020, it has also predicted a dramatic drop in new applications in 2021. Other leading economists and mortgage industry exports share similar views. The is because long-term Treasury rates that many mortgages are tied to are expected to increase within the next year. What are the reasons behind such speculations?

1. The majority of secured mortgages are bought by the Federal Reserve, so any change in its purchases will impact the mortgage industry. The economy is expected to strengthen and to stabilize as more people are vaccinated and life progressively returns to normally. Such stabilizations after uncertain periods have historically resulted in reduced purchases.

2. The national debt has increased recently, and it is expected to continue increasing until it peaks in 2023. This contributes to inflationary pressure as well as the issuance of new treasuries. These factors will play a role in the rising interest rate environment.

3. The FHFA will release government-sponsored enterprises from conservatorship in the near future. Some experts believe that this single action could drive interest rates up by 20 to 30 basis points.

4. Starting in December 2020, many refinance mortgages will have a rate add-on for an adverse market fee. This add-on is the equivalent of 50 basis points.

5. A final source of pressure on interest rates in the coming year is the anticipation that the FHFA will release Freddie Mac and Fannie Mae from conservatorship.

While many factors can influence interest rates, these may be among the most relevant driving forces in the next year. If you have plans to apply for a mortgage in 2021, now is the time to connect with a lending rep or mortgage broker for more information.

Contact one of our loan consultants to learn more.