A Year of Sinking Mortgage Rates Ends Near Record Lows

Rates mostly flat to end the year

Mortgage rates have ticked up slightly to 2.67% for a 30-year fixed-rate home loan, from the record low 2.66% last week, Freddie Mac said on Thursday.

During the same week one year ago, 30-year mortgages were averaging 3.72% — which seems almost astronomically high compared to today’s rates.

“[It] was a fitting conclusion to a year that has seen mortgage rates plunge to levels that seemed unfathomable a few years ago,” says Matthew Speakman, an economist with Zillow. “But as a new year is set to begin, some notable upward risks to mortgage rates loom."

Though the newly-passed COVID-19 relief bill had been expected for months, Speakman says the possibility of even more fiscal relief, along with important Senate runoff elections in Georgia, could prompt sharper movements in rates going forward.

Will rates head north in 2021?

Freddie Mac is forecasting stronger economic growth next year, which could push rates away from their historic lows of 2020. In its latest forecast, the company predicts mortgage rates will rise to an average 3% next year.

But, before that happens, homeowners have time to capitalize on rock-bottom rates by refinancing.

There are still more than 19 million mortgage holders who haven’t yet gotten in on the action, says mortgage technology and data provider Black Knight. Those borrowers could save an average $308 per month by refinancing now.

Good refi candidates — those with a solid credit score and at least 20% home equity — may want to lock in an ultra-low rate while they’re able.

If rates should pop unexpectedly, you’ll need to find other ways to reduce your housing costs. You could comparison shop when you buy or renew your homeowners insurance, and potentially save hundreds of dollars on your coverage.

What about homebuyers?

With mortgage rates so low, Americans hoping to buy a home in the new year are in a good position.

“The steep rise in home prices during the second half of 2020 was muted by mortgage rates,” says Realtor.com's senior economist George Ratiu.

But then the forecast gets a bit cloudy, and Ratiu expects first-time buyers will eventually find it challenging to find the best deals while COVID cases are surging, unemployment is high and home affordability is shrinking. Like homeowners, buyers also must shop around to find the best mortgage deal.

Rates on other popular home loans have dropped this week, the Freddie Mac survey shows.

The average for a 15-year fixed-rate mortgage fell to a record-low 2.17%, down from 2.19% last week, and nearly a full percentage point lower than at this time last year, when the average was 3.16%.

For 5/1 adjustable-rate mortgages, or ARMs, the average decreased to 2.71%, from last week’s 2.79%, far below last year’s average of 3.46%.