Overview: Key Mortgage Interest Rates Trends, Rate Predictions, Trends, and Graphs

Whether you are a first-time home buyer or are purchasing a second (or even third) home, it is imperative to watch the home mortgage rates trends — in particular, mortgage rate predictions or the mortgage interest rates trends.

As we’ll see, experts generally agree that home mortgage rates trend is difficult to predict — sometimes compared to the challenges of meteorology! — because today’s trend for mortgage rates seems to be in perpetual flux.  

In essence, the home mortgage rates trend is at a significant low, so anybody looking at the mortgage rate predictions to purchase a new home may want to settle into a fixed-rate mortgage or even an adjustable-rate mortgage.

There are a wide variety of mortgage plans out there, but to help you decide, we’ll look at mortgage rate trend graphs to get the general pulse of mortgage rate predictions, and then we’ll consider the aspects that are believed to influence mortgage interest rates trends.

mortgage rate predictions

Image Source: Bankrate

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The Two Basic Mortgage Rates

Just as a brief refresher, there are two main types of mortgage rates. The first is fixed-rate mortgages. In these, a borrower’s interest rate and monthly payment remains the same for the entirety of paying off the loan; the payment will remain the same even when mortgage rates jump.

Fixed-rate mortgages are often established according to 10-, 15-, 20-, or 30-year mortgage rate trends, so knowing whether to choose one of these relies on paying attention to mortgage rate predictions. According to Floyd Walters, owner of BWA Mortgage, the 30-year plans are more popular because they result in a lower monthly payment. However, if market rates drop substantially, a homeowner can always refinance (but doing so has its pros and cons, of course).

Adjustable-rate mortgages initially follow a fixed interest rate for the first several years, which are often below the prevailing market rates (making such a rate seem more affordable at the start), but then the interest rate is adjusted according to the market rates of future years. This can be bad or good — it depends on mortgage interest rates trends.

However, you don’t have to worry that an adjustable-rate mortgage will suddenly skyrocket or will upset prevalent mortgage rate predictions because these mortgage interest rates have what are referred to as “rate caps,” and these essentially limit the extent to which payments can be raised.

Certain rate caps determine how much mortgage interest rates can change on a yearly timeframe, but there are also rate caps that determine how much a loan can be altered throughout the course of a loan’s liftetime. And, of course, certain rate caps determine how much interest rates can change on a monthly basis.

Also, it’s important to note that either type of mortgage can be refinanced into the other type. That is, a homeowner can refinance his or her fixed-rate loan and change it into an adjustable-rate mortgage.

However, choosing or navigating between these two main types of home loan interest rates trends requires that a homeowner or potential homeowner pay special attention to mortgage interest rates trends and mortgage rate predictions. So, let’s take a look at the present state of mortgage rates and factors that can influence them.

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Current State of Mortgage Rates

According to this mortgage rate trend graph, the average 30-year mortgage rate trend fell 2 points to 3.44% (0.6 points). The 15-year FRM dropped 1 point to 2.76% (0.5 points). The average for the 5-year ARM fell 2  points to 2.81% (0.4 points).

Experts’ earlier mortgage rate predictions claimed that the Federal Reserve would keep raising interest rates on mortgage interest payments. Inflation was supposed to rise much higher than it did, as well, which would have resulted in raising the 30-year mortgage rate trend. However, the Federal Reserve kept interest rates fairly static because inflation rates did not increase significantly; in turn, the home mortgage rates trend actually ended up dropping.

As it turns out, mortgage rate trend graphs show that fixed-rate mortgages have reached significantly low levels that rival those of 2013 — a year that boasts the lowest mortgage interests rates of the last 45 years. Bankrate released a statement in June 2016 stating that the 30-year mortgage rate trend reached an average of 3.69%. To understand how low this is, realize that the home mortgage rates trend for the same type of loan was 16% in the 1980s.

Regardless of the mortgage rate predictions, the current mortgage rates are great for people looking to buy new homes because, essentially, they can lock in a mortgage when the housing interest rates trend is extremely low, which can save drastic sums of money in the long-term. Today’s trend for mortgage rates can also help people to sell homes: thanks to the low mortgage interest rates, more people should be willing to buy.

Aside from keeping an eye on mortgage rate predictions, would-be homeowners can do several things to ensure they get the lowest rates possible, like making sure their finances are in good shape.

Would-be homeowners should ensure that their credit is clean, that debts are paid off, that they have adequate proof of income, and that they save up money to make a larger down payment.

To do the above would ensure that potential home buyers get even better deals than the current home mortgage rates trend.

The original down payment is important: if someone can make a bigger down payment, the lender will see him or her as a less-risky investment, resulting in a lower interest rate. (In general, mortgage rate predictions and mortgage interest rates reflect lenders’ perceived risk levels for providing mortgages.)

It is important to be patient when shopping around for the lowest housing interest rates trend and interpreting the mortgage rate predictions, as different lenders charge different rates.

Also, having a go-to source that compares the present rates is crucial. Bankrate is one such place, as it keeps an eye on the rates of lenders across 650 markets in the United States, and it provides plenty of mortgage rate trend graphs.

Such websites and their mortgage interest rates trend graph, however, should not be the end of one’s search for rates and mortgage rate predictions. Rather, to ascertain the best home mortgage rates trend, borrowers should compare rates across their home banks, credit unions, and other financial institutions.

However, fluctuations in the home mortgage rates trend are remarkably difficult to predict. The housing interest rates trend can shift on a weekly basis, and even the experts have difficulty narrowing down their mortgage rate predictions; still, the average person looking to purchase a home should do his or her best to keep an eye on the factors that inform mortgage interest rates trends.

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Factors That Affect Mortgage Rates

Mortgage rate predictions are tied to what’s happening in other financial markets. Some people believe that the home mortgage rates trend is heavily influenced by whatever is occurring in the bond market. And bonds are known to be a crucial aspect of mortgage rate predictions and the home loan interest rates trends.

This chart shows Fannie Mae’s mortgage bond pricing (MBS). It shows that mortgage interest rates are inversely related to MBS prices. Essentially, when the prices of bonds rise, mortgage rates fall.

In general, bonds have this close relationship with the home loan rates trend because they compete as potential plans for investments. Investors who desire more fixed and stable returns at lower risks prefer bonds. Mortgages, on the other hand, are considered to be higher-risk because they last so much longer.

In particular, treasury bonds, distributed by the Federal Reserve, affect the home loan interest rates trend the most for a simple reason: banks establish mortgage interest rates a few points above the treasury bonds.

Thus, bonds (especially treasury notes) factor heavily in mortgage rate predictions and the home loan rates trend, making the 10-year yield a pretty good way to predict the course of today’s trend for mortgage rates.

If it is expected to rise, the home loan rates trend should be expected to rise as well. If the 10-year yield drops, mortgage interest rates may similarly improve. (It is important to note that the yields of bonds are not the same things as bond prices!)

Other factors influence mortgage interest rates trends — in particular, economic indicators such as stock market trends, gross domestic product, employment data, home starts, and home sales. If these underlying indicators show improvement, mortgage interest rates may rise as a result.

The home loan rates trend showed high fluctuations right before the Brexit vote. What essentially happened was that financial experts were uncertain of how Britain’s leaving would impact the euro, which caused a high degree of distress, resulting in either hopeful or dismal mortgage rate predictions for the market.

Some people believe that the coming U.S. presidential election will affect mortgage rate predictions, and the concern for China’s banking crisis (stemming from rising loan defaults) may also affect mortgage rate loans.

The Early 1980s

As mentioned earlier, the 30-year FRM skyrocketed in the early 80s to an average rate that hovered around 16%, as shown in this mortgage interest rates trend graph.

This time period provides an extreme case of how inflation and the Federal Reserve play a main role in the mortgage interest rates trend. Essentially, inflation ran rampant in the late 70s, mainly due to the oil crisis, and the Federal Reserve was forced to respond.

In order to curb the skyrocketing inflation, the Federal Reserve raised interest rates, which eventually affected the mortgage interest rates trends, thus accounting for the 16% high. The high interest rate did its job — it brought inflation to a halt — but unfortunately the economy as well: a painful recession resulted.

Thus, would-be homeowners should pay attention to the Federal Reserve’s policy meetings, which occur every six weeks. After each meeting, the Federal Reserve provides a statement, which may offer insight into inflation, the job market, and rate-setting policies — all of which ultimately inform mortgage rate predictions.

The remaining Federal Reserve meetings will occur on the following dates:

  • September 20-21
  • November 1-2
  • December 13-14

In general, the Federal Reserve comes up with short-term interest rates, the pricing of which depends on what the Federal Reserve thinks needs to happen in the economy.

The treasury bonds — which have longer dates — trade at a premium above these short-term interest rates, taking into account the inflation risks of the longer duration treasury bonds. In regard to the 30-year FRM, it trades at a cost slightly higher than the 10-year treasury bond.

However, someone might likely ask why the long-term fixed-rate mortgages are based on the shorter 10-year treasury bonds. The answer is that most homeowners likely will either move or refinance every five to seven years.

So, in a nutshell, if potential home buyers pay attention to the Federal Reserve’s plans for short-term interest rates, and thus treasury bonds, they will have a better grasp of mortgage rate predictions.

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Mortgage Rate Forecast

Many mortgage rate predictions claim that mortgage rates will remain relatively low. Some expect that the Federal Reserve may increase rates at least once, either in September or December. If inflation gains upward momentum, or if the Federal Reserve decides to increase federal funds to around 3%, the mortgage interest rates trend will rise in a sustained manner.

And due to the Brexit, the 10-year treasury note rate is expected to rise to 1.4% by the end of 2016. By the end of 2017, the same rate is expected to be around 1.8%. As a result, however, the average 30-year FRM is expected to reach only 3.7%.

In short, the various mortgage interest rates trend graphs shouldn’t be registering any sudden spikes anytime soon.

Conclusion: Mortgage Rate Predictions

According to mortgage rate predictions, now and the immediate future is a good time for home buyers to take on a mortgage. With the significantly low mortgage interest rates trend, home buyers should be able to lock into a mortgage, especially a fixed-rate mortgage.

As we have seen, even the experts find it difficult to predict mortgage rate fluctuations. Certain economic indicators have been mentioned, such as stock market trends, the gross domestic product, and employment data. The Brexit has also played a role in affecting mortgage rates, as well as China’s banking crisis.

The average person, however, may balk at attempting to follow so many diverse phenomena, for the sake of mortgage rate predictions; after all, it seems as if anything under the sun could affect mortgage rates.

It may help to keep a finger on the figurative pulse of the Federal Reserve, because the mortgage interest rates trend is closely intertwined with some of the Federal Reserve’s decisions.

Overall, with the significantly low mortgage interest rates, now is a great time to invest. Home buyers can potentially save in the long-term, thanks to these low rates, and people looking to sell their homes might find it a good time to do so because with lower mortgage rates, more people will be looking to buy homes.

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