Will Mortgage Rates Rise or Fall in 2021? by Greg McKinney Mineola Texas
In the Early 1970s 30 year mortgage rates were around 7.5% and rates began rising until they reached a peak in the early 1980s of around 19%. Mortgage rates had huge fluctuations during this period due to inflation.
The Feds tried to calm the markets by raising their rates but inflation was out of control. Inflation finally eased in the 1980s and mortgage rates began to drop below the double digits and has remained there. Mortgage rates are currently at historical lows around 2–3%.
Traditionally 30 year rates have been higher than 15 year mortgages because the lender is taking on more long term risk. Borrowers tend to chose the 30 year mortgage over the 15 year because of a lower monthly payment but over time they will pay much more interest. With these historically low rates we are seeing 30 year mortgages in most instances is a better choice because some borrowers with excellent credit are getting rates below 2%. This is almost free money!
There are other types of mortgages to chose from as will with terms from 10 years to 40 years with different rates depending on the length of the loan. An example is a 5 year adjustable mortgage which has typically offered lower rates. Lower rates can typically be found on mortgages up to 10 years. But borrowers need to remember they must refinance if they chose an ARM before their rate resets. ARM’s are not as popular as they were around 2005 because borrowers have learned they really do not save that much over time because they have to refinance just a few years down the road and their new rate is typically higher. The new rate they will have to pay is tied to the benchmark rate.
These historically low rates we are seeing is driving the current real estate boom. Renters are able to purchase homes for the same monthly cost they are paying in rent. That is, if they can find a home to purchase with the tight inventory of homes we are seeing. Borrowers just need to be careful during this time to not get caught up in the frenzy to buy a home and get in over their head purchasing a home. I’m Greg McKinney from Mineola Texas and I’ve been in the real estate business for almost 30 years. I’ve seen many ups and downs. We are with out a doubt at the peak of this current boom.
Many people are refinancing their existing mortgages during this time but they need to really look at the numbers to see if it is the right move for them. There are lender fees and closing costs which will either need to be paid by the borrower so they need to consider those costs before jumping into refinance their homes.
So in summary, we are in a moment in history we have never seen before. With some mortgage rates below 2% these are rates we may never see again. Especially with inflation on the rise which has historically driven rates higher we could be seeing an increase in mortgage rates in the second half of 2021 and 2022. Borrowers should do everything they can to lock in these historically low rates for 30 years because this is something we will probably never see again and will be ending very soon.