Mortgage Rates Forecast: Spring & Summer 2018
As 2018 began, the 30-year rates had been holding below 4% for 26 straight weeks, according to mortgage agency Freddie Mac.
Unfortunately, a four percent rate is now a thing of the past. The new average is around 4.5% and is likely to climb to five.
There’s good news, though: mortgage rate shoppers haven’t been priced out of a home purchase or refinance yet, but they should plan to act soon.
Mortgage Rates at Highest Level in 4 Years
According to the mortgage agency Freddie Mac, the 30-year fixed rate average as increased 62 basis points, or 0.62%, from it’s low in September 2017. This is especially dramatic when you consider that rates have remained below 4.40% since April 2014.
What does this increase mean for the home buyer or refinancing homeowner?
According to some calculations home buyers will pay an additional $100 more per month for a $350,000 home with 10% down.
Depending on when they bought or last refinanced their home, the raising rates could mean homeowners looking to refinance will not see any savings at all.
But it’s not all doom and gloom. Even these higher rates are still quite low compared to historical averages; they only seem high because we’ve been living with dramatic lows for some time now.
Rates are still near half their historical average of over 8%. Now is still a great time to lock in a low rates.
Approaching Predicted 2018 Mortgage Rates
Higher rates in 2018 were a common prediction, but no one expected them to approach these levels within the first 60 days of the year.
Here’s what the major mortgage associations and real estate watchers were predicting at the end of 2017:
- Mortgage Bankers Association: 4.6%
- Fannie Mae / Freddie Mac: 4.5%
- Realtor.com: 4.6% average, reaching 5% by year-end
- National Association of Realtors: 4.5%
- Kiplinger: 4.4%
- National Association of Home Builders: 4.34%
Rates have already met or exceeded two of the six predictions, and the other four are not far off.
But why are rates increasing so quickly?
First of all, the economy in finally close to complete recovery from the 2008 financial crash. Housing prices are rising, the stock market is doing well, and unemployment has dropped to around 4% from a recession high of 10%.
It’s common for interest rates to rise when the economy is doing well. In summer 2007, Freddie Mac reported 30-year rates close to 6.75%, and rates topped 8% in 1999.
It’s no surprise, then, to see rates rising now. If the increase continues, we could see 5% rates before the close of the year.
Conventional loan rates
Despite the recent increases, conventional refinance rates are still low. A conventional refinance is a non-government-backed loan used to refinance or replace an existing mortgage.
Conventional loans are well-suited for people with decent credit who are able to put at least 3% down.
How much equity you have in your home is also important if you chose a conventional loan. Keep in mind that 20% equity is preferred when refinancing.
Equity matters, because adequate equity in a home, a conventional refinance can pay off other loan types and sometimes cancel mortgage insurance.
For example, pretend you purchased a home three years ago with an FHA loan at 3.5% down. Once you achieve 20% equity in that home, you decide to refinance into a conventional loan in order to eliminate your FHA mortgage insurance.
Getting rid of mortgage insurance payments can save homeowners hundreds of dollars per month. Use this mortgage calculator to see how your payment could change by eliminating insurance payments.
FHA Mortgage Rates
FHA mortgages are usually the best bet for people who can’t qualify for a conventional loan. These loans usually provide a similar or even lower rate than conventional loans.
For example, the loan software company Ellie Mae reports that FHA loans averaged 4.36% in January 2018, compared to a conventional loan average of 4.37%.
This means that damaged credit doesn’t prevent you from getting a great mortgage rate. Even with the added payment of mortgage insurance, the cost-per-month is not that much lower than that of a conventional loan. Compared with the possibility of not getting a loan, the insurance payments are a small deterrent.
You’re also not excluded from refinancing if you have a FHA loan. The FHA streamline refinance program lets you convert your current FHA loan into a new one at a lower rate if rates have fallen since you received your loan. The program does not require W2s, pay stubs, tax returns, or an appraisal of your current home.
VA Mortgage Rates
Homeowners with a VA loan are eligible for the VA streamline refinance, which does not require any income, asset, or appraisal documentation. A VA streamline loan is also open to many people who would not qualify for a standard refinance.
If you are a home buyer who qualifies for VA benefits, also consider the VA loan for home buying, which requires zero down payment. This is hugely beneficial to home buyers with limited capital because they only have to raise the money for closing costs, which can even be covered by the seller.
VA loans also don’t require a high credit score; most lenders will accept scores as low as 640. These low scores do not translate into high interest rates. According to Ellie Mae, VA loans have some of the lowest rates of all loan types.
USDA Mortgage Rates
USDA loan holders also have the option of a “streamlined” refinancing process.
When applying for a USDA streamlined refinance, all you have to do is prove you are still within the USDA income limits. The value of your current home and your exact current income are unimportant.
For qualifying home buyers, there is also the USDA loan program for home buying. Designed to spur homeownership in rural areas, these loans do not require down payments and come with low rates. Sometimes USDA monthly payments are even lower than rent payments. Use this USDA loan calculator to compare yours.
In short, don’t let increasing mortgage rates worry you too much. There are still many ways to finance your home purchase or refinancing.