Bankrate.com recently released its 2021 Interest Rate Forecast, providing specific predictions for mortgage rates, home equity rates, and more.
According to Bankrate.com, rates are expected to be “largely range-bound,” with lower rates providing “significant beneficial effects for consumer spending.”
“The Fed funds rate is pinned to the floor of 0 to 0.25 percent until 2023 or so, but an equal part of the Fed’s strategy is keeping longer-term interest rates low,” said Greg McBride, CFA, Bankrate.com’s chief financial analyst. “Expect the Fed to shift to more purchases of long-term bonds in an effort to keep a lid on mortgage rates in particular and facilitate more refinancing. When millions of homeowners can cut their payments by $150, $200, $300 or more per month, that has a very stimulative effect on the economy.”
The company predicts that the 10-year Treasury note will tick up by end of year from its current rate of around 0.94 percent to 1.25 percent.
As for mortgage rates, Bankrate.com forecasts that the steady downtrend 2020 saw will reverse in 2021, with the average 30-year fixed-rate mortgage rates increasing to 3.1 percent—up slightly from the 2.95 percent for the week of Dec. 23.
“It will be an especially volatile year for mortgage rates, with fixed rates falling to even lower lows early in 2021 on economic concerns but rebounding in the back half of the year as widespread vaccinations lead to a surprisingly strong surge of economic activity and the inflation worries that come with it,” said McBride. “Any large increases will be snuffed out by the Fed’s buying of more long-term bonds and competition among lenders that brings mortgage-Treasury spreads closer to historical norms.”
Bankrate.com predicts that home equity rates may dip, with the average home equity loan clocking in at 5.05 percent and the average HELOC rate at 4.61 percent.
“The average rate available for new borrowers will be lower by year-end as home equity lenders trot out new introductory offers, particularly later in the year, should mortgage refinance activity wane,” said McBride. “Lenders continue to shy away from this product. Those that remain will get more competitive as the year rolls along.”
To read the entire report, please visit www.bankrate.com.