SILVER SPRING, Md. -- Average long-term U.S. mortgage rates moved slightly higher in the final week of 2021. Mortgage buyer Freddie Mac reported Thursday that the average rate on the benchmark, 30-year home loan ticked up to 3.11% this week from 3.05% last week. A year ago, the 30-year rate stood at 2.67%.
The lowest historical mortgage rates in history for 30-year FRMs were more recent than you might think. December 2020 saw mortgage rates hit 2.68%, according to Freddie Mac, due largely to the effects of COVID-19. The same goes for the lowest average, with an annual rate of 3.11% for 2020.
You could find mortgages with around 3% interest for most of 2021, but the Mortgage Bankers Association is predicting that rates will rise to 4% this year, which could make monthly payments on mortgages more expensive.
Some experts forecast mortgage rates to stay fairly low this summer. So the rise in rates may be less severe than originally anticipated. “We initially expected rates to approach 3.4% by the end of 2021. ... “This would mean that rates will likely near 3.25% by year-end.”
Right now, a good mortgage rate for a 15–year fixed loan might be in the high–2% or low–3% range, while a good rate for a 30–year mortgage might range from 3–3.5% or above. You'd have to be lucky (and a very strong borrower) to find a 30–year fixed rate below 3% at this time.
The federal funds rate, which was about 11% in 1979, rose to 20% by June 1981. The prime interest rate, an important economic measure, eventually reached 21.5% in June 1982.
Anything at or below 3% is an excellent mortgage rate. And the lower, your mortgage rate, the more money you can save over the life of the loan. ... If you get that same mortgage but at a rate of 3.8%, you'll be paying a total of $169,362 in interest over a 30-year repayment term.
The lowest average annual mortgage rate on 15-year fixed mortgages since 1991 was 2.66%. This occurred in both late 2012 and in April 2013. As of 2020 and 2021, the average 15-year fixed mortgage rate has dropped even further to 2.61% and 2.27%, respectively.
Fitch Ratings-London-11 January 2022: Fitch Ratings expects the Fed to raise rates twice in 2022 and four times in 2023, taking the Fed funds rate (upper bound) to 1.75% by end-2023 from 0.25% currently.
The Bank of England is keen to prevent inflation rising, which it forecasts could reach 7.25% in April and average close to 6% throughout 2022. The Bank's chief economist has warned that more interest rates rises might be needed to curb inflation.
The mortgage rates trend continued to decline until rates dropped to 3.31% in November 2012 — the lowest level in the history of mortgage rates.
Runaway Inflation Kills Housing
The reason interest rates, which ultimately are set by the Federal Reserve, exploded in 1980 was housings' arch nemesis, runaway inflation. The Fed funds rate, which is the rate banks charge each other for overnight loans, hit 20 percent in 1980, and 21 percent in June 1981.
Defining a 30-year fixed-rate mortgage
A 30-year mortgage is a home loan that will be paid off completely in 30 years if you make every payment as scheduled. Most 30-year mortgages have a fixed rate, meaning that the interest rate and the payments stay the same for as long as you keep the mortgage.
Lasting from July 1981 to November 1982, this economic downturn was triggered by tight monetary policy in an effort to fight mounting inflation. ... Unemployment during the 1981-82 recession was widespread, but manufacturing, construction, and the auto industries were particularly affected.
With a 700 score, you're likely to qualify for a conventional loan with cheaper mortgage insurance and an even smaller down payment. There are just a couple exceptions to that rule: If you have higher debt, an FHA loan might be better. FHA can be more forgiving of a high debt–to–income ratio.
Other lenders are in noticeably better shape, however. In outright terms, that means rate quotes of 4.125% are common, 4.0% is not uncommon, and 3.875% is possible for the most flawless scenarios--especially in cases where borrowers are willing to pay a bit more in upfront closing costs to buy down the rate.
The leading organization for real estate professionals predicts the 30-year fixed-rate mortgage will climb slightly throughout 2022, reaching 3.5% in the second quarter and averaging 3.6% for the year, and reaching 3.9% by the end of the year.
Fortunately, Federal Reserve officials have already stated they plan to keep the short-term federal funds rate near zero well into 2023. This policy could help mortgage rates stay low in 2022, despite some gradual upward creep over the coming months.
What we found is that Monday is the “calmest” day in mortgages and Wednesday is the liveliest. In general, 25 basis points equates to a 0.125 percentage point change in mortgage rates.
Too much of a good thing, in the form of rapidly rising wages, is expected to push Federal Reserve interest rate hikes at an even faster pace. ... The bank's economists see seven quarter-percentage-point rate hikes in 2022, followed by four more next year.