Will the low rates continue?

If you’re looking to buy a home or refinance your current one, expect mortgage rates to remain low into 2021. However, the possibility of rates falling to 2.5 percent or lower has faded as the U.S. economy has rebounded.



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skynesher/Getty Images

The average 30-year fixed mortgage rate reached an all-time low of 3.09 percent in September 2020, according to Bankrate’s weekly survey of large lenders. The uncertainty caused by the coronavirus pandemic has also created uncertainty around where rates will go by mid-2021.

Some rate watchers say rates could fall further, setting new record lows. Others expect it to edge back toward 3.5 percent. The wild card, of course, is how the U.S. economy recovers from the COVID-19 pandemic, an economic shock without precedent for at least the past century.



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Here’s how a range of experts predicts mortgage rates will move.

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Expect mortgage rates to remain low

While the Federal Reserve has indicated it will hold rates down for years, the Fed only directly controls interest rates with the shortest terms. “Longer-term interest rates, including mortgage rates, will reflect the economy’s track,” says Lynn Reaser, chief economist at Point Loma Nazarene University in San Diego.

A vaccine could enable tourism and other parts of the economy to rebound. Rising confidence, growing retail activity and falling unemployment would spill over into financial markets. “As the economic recovery gains momentum, mortgage rates might back up to around 3.5 percent,” she says.

However, Ken H. Johnson, a housing economist at Florida Atlantic University, is less optimistic about a quick economic recovery. “Rates will remain low for at least another year,” he says. “I just do not see full or near-full economic recovery until COVID-19 no longer or minimally impacts the economy.”

Economic recovery could boost rates

Greg McBride, CFA, Bankrate’s chief financial analyst, sees rates holding steady in the coming year. “Mortgage rates will remain at historically low levels and in no way be an impediment to well-qualified borrowers, but they won’t be quite as low as what was seen in the summer of 2020,” he says. “A refinance fee taking effect in Q4 2020 and further economic improvement will push rates a bit higher.”

Audrey Boissonou of Guarantee Mortgage in Walnut Creek, California, says the direction of the economy will prove crucial. “I’m locking people in in the high 2s right now,” she says. “I am seeing nothing that makes me think rates will go up. Of course, it all depends on what happens in the next few months. It can all change on a dime.”

Predicting rates is always a challenge, as Boissonou notes. But if the Fed’s attitude is any indication, then rates could remain low over the next year.

The Fed has set a pattern of keeping long rates low in challenging times, says William Emmons, the lead economist at the Center for Household Financial Stability at the Federal Reserve Bank of St. Louis. “The demonstrated willingness of the Fed is to do the old cliche of ‘whatever it takes,’” says Emmons, who adds that he doesn’t state the Fed’s official position. “That’s pretty widespread, the belief that the Fed will do whatever it takes.”

If you’re keeping a close eye on rates, remember that a presidential election is coming in November, as if anyone who follows the news these days could forget.

“The $64,000 question as it relates to the financial markets and to the mortgage market is who will be our next president,” says Andrew Weinberg, principal at Silver Fin Capital Group. “At a minimum, it is fair to say that each candidate will have a different approach to the economy, taxes and how to best achieve growth.”

Typically, the Fed tries to keep a low profile in an election year. But this year is anything but typical. The Fed has pumped trillions of dollars into the U.S. economy to counter the coronavirus recession.

Although low rates are generally beneficial to homeowners and buyers, they also can fatten price tags of homes, which cancels out the savings from historically low rates. Gordon Miller of Miller Lending Group in Cary, North Carolina, says the combination of economic volatility and political uncertainty could push rates even lower. “I don’t think we’ve bottomed yet,” Miller says, “so that would suggest a rate within a quarter-point of where we are.”

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