One of the most important things to consider when you are thinking about buying a home is the current mortgage rate. Is now a good time to take out a mortgage? Is the current rate too high, or is it low enough to be considered a good deal?
These aren’t questions to be taken lightly. The mortgage interest rate is a major factor in determining how much you will pay in interest over the life of your loan. If the rate is high when you take out a mortgage, you could end up paying thousands more over the years than if it was lower.
Let’s take a look at factors that influence mortgage rates, where mortgage rates currently are, and where mortgage rates are expected to go in 2021.
What Causes Changes in Mortgage Rates?
Mortgage rates are constantly in motion, and several factors contribute to their rise and fall. A few factors include:
- Economic growth
- The Federal Reserve
- The supply of money
- Financial markets
Increased demand for money is a factor that can drive mortgage rates up. This typically occurs when the economy is growing. When economic growth slows, it can cause mortgage rates to decline.
Inflation may occur during periods of economic growth and is another factor that can drive mortgage rates up. Inflation can result in a mortgage rate increase as lenders hedge against a decrease in the value of the dollar.
The Federal Reserve Board is another major influence on mortgage rates. The Fed, as it is also known, takes action to decrease rates to encourage economic growth and to increase rates to counter inflation.
The Fed also influences the supply of money, which is another tool it uses to encourage economic growth or to fight inflation. When the supply of money is increased, mortgage rates decline. The opposite occurs when the supply of money is decreased.
Finally, mortgage rates are often influenced by benchmarks set by financial markets. The 10-year Treasury bond, for example, is a benchmark that lenders often use to predict where interest rates may be headed. The use of benchmarks helps lenders ensure that mortgage loans are profitable well into the future.
The Latest News on Mortgage Rates
Mortgage rates are currently at historic lows thanks to a decrease in demand from the pandemic lockdowns and a stagnant economy. Rates hit an all-time low on January 7, 2021, when they bottomed out at 2.65%. If you are thinking about refinancing or buying a home, now is a great time to lock in a great rate.
Although mortgage rates are always fluctuating, they dipped below 3% as recently as a few weeks ago. Rates have been trending upward, however, since January.
Mortgage Rate Forecast for 2021
Mortgage rates are expected to continue on an upward trend through the rest of 2021. Several factors contribute to this.
The first is stronger economic growth as the economy rebounds from the pandemic lockdowns and people return to work. Economic stimulus packages passed by Congress are also expected to contribute to the economic recovery.
Inflation is another factor that is causing mortgage rates to increase. Thanks to a hotter economy, people have more buying power, thus increasing prices and demand for many common products and services.
Finally, government stimulus spending is another factor in recent inflation. Deficit spending is resulting in an increase in bond issuance. This affects the mortgage interest rate because bond prices and mortgage rates are interconnected.
View Our Mortgage Rates
With mortgage rates at historic lows, there’s never been a better time to buy a home or refinance an existing mortgage. Contact a Jeanne D’Arc Credit Union representative today to find out how easy it is to start the process.