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There’s never been a better year for borrowers than 2020.
Average mortgage rates dropped below 3% for the first time since Freddie Mac started tracking rates in 1971, offering both new homebuyers and current mortgage holders the opportunity to save thousands of dollars in interest payments.
And as long as the U.S. economy is still mired in a recession, rates are expected to stay low. Many experts anticipate mortgage rates rising in 2021, yet remaining favorable compared to historical averages. With 30-year fixed rates touching 2.7% in 2020, even a steep increase of 1% would leave rates well short of the 5% to 6% average rates we saw just 15 years ago.
Before you jump to refinance your existing mortgage, you need to understand the fees you’ll pay, which are included in the annual percentage rate (APR). It’s also important to realize that the average rates may not apply to your situation. Your credit score, debt-to-income ratio (DTI), and the size of your down payment will all affect the mortgage rates you’ll be able to qualify for.
Historical Mortgage Rate Averages From the Past 19 Months
What Are Mortgage Interest Rates Based on?
No government entity sets or directly regulates mortgage rates. Rather, they’re based on a number of broader market factors. Everything from the demand for housing to inflation and the overall health of the economy can influence mortgage rates — as well as refinance rates.
Typically, when the economy is strong and unemployment rates are low, rates will rise because demand is higher. But during a recession — like the one we’re currently experiencing — rates will often decline as lenders try to entice a smaller pool of borrowers looking to spend.
Monetary policies set by the Federal Reserve can also have a significant impact on mortgage rates, even though they don’t directly set rates. When the Federal Reserve lowers the federal funds rate or purchases large quantities of treasury securities it puts downward pressure on mortgage rates.
How Mortgage Rates Affect Your Monthly Payment
Your monthly mortgage payment typically comprises mortgage, interest, and escrow payments. And what on the surface may look like a small increase in your interest rate, can have a big impact on your bottom line. So it’s important to compare mortgage lenders to ensure you’re getting the best deal.
Over a 30-year term, a 0.5% rate increase on a $250,000 loan balance could cost $68 more a month and almost $25,000 extra in interest over the life of the loan.
|Loan Term||Loan Amount||Interest Rate||Monthly Payment||Total Loan Cost|
Typically, 15-year mortgages have lower rates than 30-year loans, and because you’re paying the loan off much quicker, they are usually cheaper. So the same rise in interest rates would be less expensive in the long term, but nearly as costly month to month.
|Loan Term||Loan Amount||Interest Rate||Monthly Payment||Total Loan Cost|
How Does Your Credit Score Affect Your Rate?
Aside from macroeconomic factors that are out of your control, your personal situation will also influence the interest rate you’re eligible for. Your debt-to-income, or DTI ratio, assets, and credit score can have a big affect on your mortgage rate.
Lenders set mortgage rates based on how risky they determine a loan to be. So having a higher DTI ratio, lower credit score, or smaller down payment will increase the rate you’re likely to qualify for. On the other hand, improving your credit score and having a bigger down payment can have the opposite effect and reduce your interest rate. While each lender has different standards, having a down payment of at least 20% and a credit score of 700 to 740 will typically get you the lowest mortgage rate.
If you’re having trouble qualifying for a mortgage or getting a decent interest rate, you may have better luck with a government-secured loan. Certain mortgages are backed by the different departments of the federal government and are considered less risky by lenders. There are loans guaranteed by the Federal Housing Administration (FHA loan), Department of Veterans Affairs (VA loan), and the Department of Agriculture (USDA loan).
What Is an APR?
The annual percentage rate, or APR, shows you more than just the interest rate on your loan. It also includes many of the fees you pay on any mortgage or refinance. While your mortgage interest rate is the biggest long-term cost associated with a home loan, it’s not the only expense to pay attention to. Anytime you take out a mortgage, there are upfront fees known as closing costs. This can include fees paid to the appraiser and home inspector, as well as loan origination fees, and discount points. All of these costs add up, and can easily be anywhere from 2% to 5% of the loan amount.
These initial costs can vary significantly by lender. So if you’re comparing loan offers based only on the interest rate, you could end up paying more fees than necessary. This is why understanding APR is important. If one loan has higher broker fees, that will be reflected in the APR, but not the interest rate. So the APR gives you a better idea of the total cost of the mortgage.
Are Mortgage Interest Rates Going to Rise?
In 2020, the pandemic and ensuing recession repeatedly drove mortgage rates to new all-time lows. Given how low rates have been, you should expect rates to rise in the future. But when they will rise and how high they will go depends on a handful of influences.
How and when the economy recovers from this recession is likely to be the main factor that drives rates higher. Logan Mohtashami, housing data analyst with HousingWire, believes our economic recovery and the potential for rising rates is tied to the successful implementation of a vaccine. So we’re likely to see continued low rates until the unemployment rate, and other economic indicators, start to return to pre-pandemic levels, Mohtashami says
Even after the pandemic is behind us, rates should still be historically favorable compared to the double-digit mortgages rates of the ’70s and ’80s. “I would be shocked if I ever saw 6% mortgage rates in my life,” Mohtashami says. “Rates have been going down for four decades.” He believes that unless the government takes extreme measures to stimulate the economy, demographic trends and other macroeconomic factors will keep rates relatively low in the long term.
Mortgage Rate History from the Past 12 Months
|Date||Average 30-year fixed||Average 15-year fixed||Average 5/1 ARM|
|Jan. 22, 2021||2.882%||2.3615%||2.9789%|
|Jan. 15, 2021||2.9014%||2.3873%||2.8973%|
|Jan. 8, 2021||2.8892%||2.3371%||2.9467%|
|Jan. 1, 2021||2.8836%||2.3752%||3.0093%|
|Dec. 25, 2020||2.9157%||2.3766%||3.0604%|
|Dec. 18, 2020||2.8647%||2.3951%||3.0465%|
|Dec. 11, 2020||2.9206%||2.388%||3.0107%|
|Dec. 4, 2020||2.9054%||2.3927%||3.0194%|
|Nov. 27, 2020||2.9241%||2.4139%||3.0238%|
|Nov. 20, 2020||2.957%||2.4688%||3.0289%|
|Nov. 13, 2020||3.016%||2.4965%||3.043%|
|Nov. 6, 2020||3.067%||2.6254%||3.0348%|
|Oct. 30, 2020||3.0139%||2.5802%||3.0414%|
|Oct. 23, 2020||3.0347%||2.5643%||3.0624%|
|Oct. 16, 2020||3.0241%||2.5456%||3.1009%|
|Oct. 9, 2020||3.0351%||2.5519%||3.1037%|
|Oct. 2, 2020||3.0841%||2.5902%||3.1091%|
|Sep. 25, 2020||3.0145%||2.4811%||2.8943%|
|Sep. 18, 2020||3.0074%||2.476%||3.0491%|
|Sep. 11, 2020||3.0572%||2.558%||3.3357%|
|Sep. 4, 2020||3.0614%||2.548%||3.3231%|
|Aug. 28, 2020||3.0669%||2.604%||3.3604%|
|Aug. 21, 2020||3.0297%||2.6399%||3.3675%|
|Aug. 14, 2020||3.1116%||2.6404%||3.3231%|
|Aug. 7, 2020||3.0762%||2.6611%||3.2799%|
|Jul. 31, 2020||3.0925%||2.7354%||3.2972%|
|Jul. 24, 2020||3.1338%||2.7153%||3.1864%|
|Jul. 17, 2020||3.137%||2.7182%||3.1879%|
|Jul. 10, 2020||3.2017%||2.7193%||3.1027%|
|Jul. 3, 2020||3.2619%||2.794%||3.1127%|
|Jun. 26, 2020||3.326%||2.862%||3.1559%|
|Jun. 19, 2020||3.4066%||2.8558%||3.18%|
|Jun. 12, 2020||3.3991%||2.8316%||3.1724%|
|Jun. 5, 2020||3.4524%||2.8229%||3.1784%|
|May. 29, 2020||3.5739%||2.8811%||3.2745%|
|May. 22, 2020||3.5388%||2.8977%||3.3191%|
|May. 15, 2020||3.5603%||3.0006%||3.3092%|
|May. 8, 2020||3.5426%||3.1504%||3.3308%|
|May. 1, 2020||3.5319%||3.0592%||3.3539%|
|Apr. 24, 2020||3.5718%||3.1452%||3.3791%|
|Apr. 17, 2020||3.5647%||3.0936%||3.3717%|
|Apr. 10, 2020||3.7339%||3.2267%||3.4885%|
|Apr. 3, 2020||3.8591%||3.3007%||3.3479%|
|Mar. 27, 2020||3.7897%||3.2868%||3.4346%|
|Mar. 20, 2020||3.9845%||3.1977%||3.3982%|
|Mar. 13, 2020||3.8317%||3.0446%||3.4104%|
|Mar. 6, 2020||3.6886%||3.0459%||3.4584%|
|Feb. 28, 2020||3.6568%||3.1494%||3.6011%|
|Feb. 21, 2020||3.7018%||3.1873%||3.6614%|
|Feb. 14, 2020||3.5968%||3.1091%||3.4967%|
|Feb. 7, 2020||3.6182%||3.1215%||3.3167%|
|Jan. 31, 2020||3.6646%||3.1607%||3.3772%|
|Jan. 24, 2020||3.7687%||3.2291%||3.4214%|
|Jan. 17, 2020||3.807%||3.2449%||3.4365%|
|Jan. 10, 2020||3.7381%||3.2755%||3.9618%|
|Jan. 3, 2020||3.8629%||3.4113%||3.5016%|
Rates as of Tuesday, Dec. 15, 2020
These rate averages are based on weekday mortgage rate information provided by national lenders to Bankrate.com, which is owned by the same parent company as NextAdvisor. These marketplace average rates for a variety of refinance loan types are updated daily, though it is possible rates have changed since this was last updated.