Mortgage rates could be on a roller coaster ride over the next year, with the coming months looking to be particularly significant. In Fannie Mae’s Housing Forecast report, economists predict that the average 30-year fixed-rate mortgage for 2020 will drop to 3%, and then fall to 2.9% by 2021. Both would be all-time lows.
Many home owners with strong credit seeking to buy could see rates in the mid- or even low 2% levels, the mortgage industry predicts. “This would make buying or refinancing possible for many who can’t afford it right now,” according to The Mortgage Reports. A 2.9% mortgage rate instead of a 3.9% rate could raise homebuying power by $36,000.
The lowest average mortgage rate on record currently is 3.29%, which was set in March of this year amid COVID-19 fears, according to Freddie Mac. Mortgage rates have remained near historical lows ever since.
A year ago, mortgage rates averaged 4%. Homeowners and potential buyers can save thousands of dollars over the life of the loan from the drop in rates. For example, The Mortgage Reports uses an example of a $200,000 loan amount with a 4% versus 2.9% 30-year fixed-rate mortgage. Home buyers could potentially save $121 a month and $44,000 over the life of the loan.
“With a full year of record low mortgage rates, many homeowners would be able to refinance, reducing their monthly payments and overall loan interest,” according to The Mortgage Reports. “And prospective home buyers might be able to afford a house sooner than they thought—or buy a more expensive home than they’d be able to afford if rates were higher.”
The lower borrowing costs could help with housing affordability. Even with a slowdown likely in the housing market due to COVID-19, Fannie Mae economists are still predicting existing home prices to increase by 2.5% between 2019 and 2021.