By Brandon Cornett | February 25, 2013
Average mortgage rates have been inching upward for the last 30 days or so. According to one expert source, they may rise even further between now and the end of 2013.
Frank Nothaft, the chief economist for Freddie Mac, recently said that he doesn’t expect rates to set any more record lows this year. “I do think that perhaps the all-time low is behind us,” he said.
Freddie Mac is the now-government-controlled corporation that buys and sells mortgages in the secondary market.
So, what can we expect for the rest of 2013? Mr. Nothaft had some thoughts on that as well. He believes the average mortgage rate for a 30-year loan will rise gradually over the coming months, perhaps reaching 3.75% by the end of the year. We could see continued elevation in 2014, when the benchmark rate may rise beyond 4%.
To put those numbers in perspective: Mortgage rates soared as high as 15% in the early 80′s. I’m just saying.
Last week, the average rate for a 30-year fixed mortgage rose to 3.56%, a slight increase from the week before. Last week’s average was 0.22% higher than at the start of the year, when it averaged 3.34%. So the general trend has been upward for the first two months of 2013. The 15-year fixed averaged 2.77% last week, while the 5/1 ARM held steady at 2.64%. This is according to Freddie Mac’s weekly survey of the primary mortgage market.
At this point, the consensus is that mortgage rates will rise slightly between now and the end of 2013. For homeowners seeking a refinance loan, and for home buyers planning to make a purchase, this might be as good as it gets. Of course, delaying your move by a few weeks or months shouldn’t make a huge difference either. See the two scenarios below for more on this.
Mortgage Rate Scenarios: Now or Later
Mortgage rates are expected to inch upward over the coming months. This we know. But how would that affect the monthly payments on a 30-year fixed loan (the most popular financing option these days)? Here’s an example that shows how the monthly payments, and the total amount of interest paid during the term, would vary based on the rate.
Notes: These numbers were produced with a mortgage calculator provided by Bankrate.com. I have excluded the variables of property tax and homeowners insurance to simplify the math.
$300,000 mortgage loan
3.56% interest rate (current average)
Monthly payment = $1,357.20
Total interest paid over 30 years = $188,592
$300,000 mortgage loan
3.75% interest rate (predicted average by year’s end)
Monthly payment = $1,389.35
Total interest paid over 30 years = $200,164
The borrower who waited until the end of the year and received a higher rate (Scenario ‘B’) ended up with a higher monthly payment as well. But it was only about $32 higher than the monthly payments in the first scenario. So we’re not talking about a major cost difference here. That borrower also paid $11,572 more in total interest charges, over the 30-year term of the loan. But honestly, who keeps a mortgage for 30 years these days?
This scenario assumes two things: (1) that 30-year mortgage rates will actually rise to an average of 3.75% by the end of 2013, as predicted; and (2) that the borrowers in question were able to lock in the average rate.
Remember, the mortgage rate assigned to your loan will largely depend on your qualifications as a borrower — your credit score, debt level, down payment, etc. So the numbers used in these scenarios won’t be applicable to all borrowers. Still, they serve to illustrate a key point. You might benefit from getting a loan now, as opposed to later in the year. But you won’t necessarily ‘miss the boat’ if you wait a while.
My advice is to do what’s best for you, and not to sweat the rates. Major changes are not in the tea leaves at this time.
“Until the economy strengthens and the job market picks up, we won’t see rapidly rising interest rates,” says Doug Lebda, CEO of LendingTree.
Disclaimers: This story contains mortgage rate predictions and forecasts for the remainder of 2013. Those forward-looking statements were made by third parties and do not necessarily reflect the views of the publisher. We make no claims or guarantees as to how rates will change in the future. We encourage our readers to research market conditions and to conduct a thorough financial self-assessment, before making any mortgage-related decisions.