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- Mortgage rates hit 3.17% this week, a level we haven’t seen since June 2020
- The window to save by refinancing is shrinking, as experts believe rising rates will be the long-term trend
- Demand for homes remains strong and inventory is low, so don’t expect your house hunt to get any easier
It’s a new month and the mortgage experts have spoken: you can expect rising rates to continue in April, although at a somewhat slower pace.
This prediction fits with rate trends we’ve seen these past two months where mortgage rates have increased sharply. The average 30-year fixed mortgage rate rose by 0.16% in March to 3.18%, after growing 0.29% in February.
So far this year, mortgage rates have behaved exactly as many experts have predicted – growing in lockstep with a recovering economy. For example, as unemployment claims have fallen to their lowest level since the beginning of the pandemic, mortgage and refinance rates are quickly returning to what they were in the early days of the shutdown.
Here’s where experts expect mortgage rates to go in April 2021.
Melissa Cohn, Executive Mortgage Banker with William Raveis Mortgage
Cohn believes rates will increase as a result of economic growth and rising inflation. “With the passing of the stimulus package and with checks having gone out to people, that means there’s money in people’s pockets,” Cohn says. As spending increases, prices should rise and that typically puts upward pressure on interest rates.
However, it’s likely that we won’t see the same spike in rates that we’ve had over the previous two months. Rising interest rates have weakened the demand for refinance loans. With a smaller pool of potential borrowers, we might see lenders offer more competitive rates as they fight for business. “Think about the thousands of people the mortgage industry has hired over the course of the past year … in order to keep people busy they’re going to have to be more aggressive in their pricing,” Cohn says. The increased competition is one factor that could limit rate growth.
John Pataky, Chief Banking Officer at TIAA Bank
Outside of an unexpected event, Pataky sees mortgage rates climbing in April, but at a calmer pace. “I don’t see us all of a sudden, moving to 4% for the 30-year mortgage,” Pataky says. Although, he’s quick to point out that no one saw rates dropping as dramatically as they did in March 2020 when stay-at-home orders went into effect.
There are signs that the economy could recover sooner than expected, which is one reason we’ve seen interest rates grow. “There’s progress being displayed each month, that’s encouraging. And I think that in and of itself allows for some natural inflationary activity to start to ease into the markets,” Pataky says. One thing that could temper mortgage rates is global demand for U.S. Treasury bonds. Increased demand for Treasuries would put downward pressure on mortgage rates, which are closely tied to Treasury bond yields.
Tony Thompson, Founder and CEO of the National Association of Minority Mortgage Bankers of America
Thompson sees rates rising by 5 to 25 basis points (.05% to 0.25%) in April. To get a better understanding of where rates are headed, he says to keep an eye on what people do with their stimulus checks. If people are spending the money that could continue to drive inflation — and the bond market — higher. But if people increase their savings, then we could see inflationary pressures taper off.
As rates continue to rise, there’s still time to lock in a good rate. But no one knows how long that will last. “With refinancing I think we’re going to continue to see borrowers slowly try to get in before rates go up,” Thompson says. “Borrowers have realized that we might be in the beginning of a different rate environment.”
Andy Walden, Vice President of Market Research at Black Knight, Inc.
Walden sees the recent rise in mortgage rates being connected largely to the increase in Treasury yields we have seen over the same period. And looking forward, you should be paying attention to similar factors to understand how rates may move. How bond investors interpret the broader economic recovery will have a large impact on Treasury yields and mortgage rates, he believes.
For borrowers, rates are still low, even though they are higher than they were just two months ago. So there’s still a large pool of homeowners that stand to save with a refinance. “There are still 13 million refinance candidates, even though that’s down from where we were in the fourth quarter of last year, that would be a record for any year that wasn’t 2020,” Walden says. While the savings you can secure with a refinance may be lighter, the opportunity hasn’t completely evaporated.
Kimber White, President of the National Association of Mortgage Brokers
Even though we’re in a volatile market, we may see rates stabilize in April, Kimber believes. But at their current levels, rates will still have an impact on borrowers. “The housing market is hot in most of the United States, but you’re definitely going to see the refinance market cooling off,” White says.
A large number of borrowers already refinanced over the past year. So there’s a smaller pool of homeowners that refinancing make sense for at the moment. But homeowners may be able to weather rising rates a bit easier by adjusting their homebuying budget. “People who want to buy are still going to buy,” White says. “I think more people are going to realize that they need to buy now.”
What Does This Mean for Your April Home Buying or Refinancing Plans?
April could still be a good time to refinance, if rates don’t dramatically increase and your savings will outweigh the upfront costs.
Rates are still roughly 0.5% lower than they were in January of 2020, so the opportunity to save is still there for many borrowers that haven’t refinanced in the last year. However, you still need to calculate your refinance savings to ensure it makes sense. The closing costs on a refinance mortgage can run anywhere from 2% to 5% of the loan balance.
For buyers, the biggest problem in today’s market is that demand has far outstripped supply. The increased competition for homes has led to bidding wars and rising home prices.
While low mortgage rates have played a part in this, don’t expect moderate rate increases to make a dramatic difference. As we head into the spring buying season, home sales remain high.
How to Get the Best Mortgage Rate Regardless of Where They’re Headed
To get the lowest mortgage rate possible, you need to shop around and compare different lenders’ rates. Finding the best mortgage lender can more than offset mortgage rate increases.
Your personal finances also matter when it comes to mortgage rates. Before you apply for a mortgage or refinance loan, review your credit report. Correcting errors or taking the time to build your credit score to 740 or higher will also help you get a lower rate.
Having a bigger down payment is also important. A larger down payment will decrease your loan-to-value ratio (LTV), which lenders like to see. You may even qualify for down payment assistance, which can get you thousands of dollars in free money to help you purchase a home.