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- Mortgage rates have hovered around 3% for several months, and experts say that is likely to continue through July
- Homebuyers looking to take advantage of these rates still have to deal with low inventory and rising prices
- Now is still a great time to refinance, if it makes sense for your financial situation
Experts say mortgage rates will stay near 3% this month, extending the opportunity to lock in a historically great mortgage or refinance rate.
Here’s what four experts expect to happen with mortgage rates in July 2021.
Odeta Kushi, Deputy Chief Economist at First American Financial Corporation
Kushi sees mortgage and refinance rates remaining relatively stable in the coming weeks. Despite increasing concerns over inflation, which normally pushes rates higher. “The Federal Reserve continues to believe that the current spike in inflation is reflecting transitory factors,” she says. “[Mortgage rates] have not responded to the recent inflation news, largely because, again, it seems that financial markets seem to agree that inflation is transitory.” In other words, the current level of inflation is expected to be temporary, and not to be sustained over the longer term. So homebuyers and homeowners should still have some time to lock in an exceptionally low rate.
However, over the long-term, we could see rates creep up slightly. “That’s just a function of what will play out with inflation and also just the economy improving as we expect it will,” Kushi says. But mortgage rates are always difficult to forecast because there is such a wide range of factors that influence where they go.
Robert Heck, Head of Origination at Morty
Barring something unexpected, Heck believes mortgage rates will stay within a similar range to what we’ve seen recently. “From the Federal Reserve side of things, they’re also interested in keeping volatility low, and interest rates where they’re at,” he says. The Federal Reserve expects to keep its benchmark interest rate near zero through 2023 and to continue purchasing bonds at its current rate. Both of these actions will work to keep mortgage rates low.
But, homebuyers need to consider more than just their mortgage rates when purchasing a home. Home prices have been skyrocketing recently, driven by low inventory and high demand. “It just creates a lot of pressure to make financial decisions extremely quickly,” Heck says. “Mortgage rates are extremely low, but if you’re buying a home that you wouldn’t necessarily buy independent of rates being low it might not be the right decision for you,” Heck says. It doesn’t look like the real estate market will turn in favor of buyers anytime soon, so potential buyers should expect to have to balance low rates with high prices for the rest of this year.
Ali Wolf, Chief Economist at Zonda
Wolf believes the Federal Reserve’s actions are essential to forecasting mortgage rate trends. “Historically, we expect to see that as the economy improves, interest rates at least move up marginally, and we’re kind of seeing the opposite effect right now,” Wolf says. One factor driving today’s depressed rates is the Federal Reserve’s belief that the current rate of inflation is temporary. This has kept policies in place to maintain low rates even as the economic outlook improves. Rates should continue to remain near their current levels as long as the Federal Reserve doesn’t drastically change course, and investors don’t expect higher levels of inflation.
This is good news for homeowners looking to refinance because mortgage and refinance rates are so low. But it’s a different story for homebuyers. “As interest rates remain low we should expect that home prices are going to remain high, and that price appreciation is going to remain in the market,” Wolf says. Buyers looking to find a deal on a dream home will continue to face an uphill battle.
Brian Wildermuth, Senior Vice President of Real Estate Services at Deluxe Branded Marketing
Wildermuth expects mortgage rates to continue the trend of staying relatively flat. “Every indication is that we’re going to continue to see [mortgage rates] right at or around 3%, potentially a little bit higher, but not much,” he says. As long as the Federal Reserve continues its effort to keep rates down, we shouldn’t see rates spike in the near term.
All this means that even if rates inch higher, you should still have access to near historic lows for the time being. “[Borrowers] see any small fluctuation in the rate, and they start to panic, but there’s no reason to do that,” Wildermuth says. “The only impetus to maybe move quicker, is that we’re definitely not going to see a massive tapering off of appreciation, at least in the next year.” With low rates continuing to linger, and housing inventory staying low, the real estate market is likely to stay red hot.
What Does The Predicted July Rate Trends Mean for Refinancing?
Just a few years ago interest rates were higher, hovering around 4% compared to the 3% they are near right now. But recent mortgage rate trends have been good news for anyone looking to refinance. Rising home prices have increased the equity many homeowners have, which will help you secure a lower rate. If you’ve also got a strong credit score, you might be able to reduce your interest rate by 1% or more — a good benchmark to go by in considering whether a refinance is worth its upfront costs.
Let’s say you bought a home for $400,000 with 10% down and took out a 30-year mortgage at 4.25% for the $360,000 you needed to borrow. If you’ve been paying the loan for three years you’d have a loan balance of roughly $341,000, according to the NextAdvisor mortgage calculator. By taking out a new 30-year refinance loan at 3.25% you would lower your monthly payment by $286 and save close to $40,000 in interest.
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This may be a good move for you, but keep in mind that refinancing isn’t free. You’ll pay closing costs of anywhere from 3% to 6% of the loan balance. Even if your lender offers a no-closing-cost refinance, those fees will be added to your loan balance or you will be given lender credits in exchange for a higher interest rate. So make sure you’re factoring in these costs in addition to how much you could save on interest over the life of a refinanced loan.