As we begin the last quarter of the year, prospective homebuyers and homeowners looking to refinance or get a purchase mortgage are eager for clues about the direction of rates this month. Will record-low rates continue?
That curiosity is enhanced by the fact that we’re only a month away from the presidential election and with that, possibly new policies in Washington, D.C., that could have a big impact on interest rates, the direction of the economy and the pandemic.
Where mortgage rates are headed in October
Ask an array of experts where they think mortgage rates are headed in October and the near-term and you’re likely to get a consensus answer: within a continued affordable range and near historical lows.
“The economy is still a long way from normal, and the path of the coronavirus remains uncertain. That, and the Fed pledging to keep interest rates on hold, likely through 2023, will keep mortgage rates at very low levels in October – especially for homebuyers,” says Greg McBride, CFA, Bankrate’s chief financial analyst.
Nadia Evangelou, senior economist and director of forecasting for the National Association of Realtors, seconds that sentiment.
“In October, mortgage rates will hold steady near record lows below 3 percent,” she says. “That’s despite the new 0.50 percent adverse market refinance fee from Fannie Mae and Freddie Mac and the fact that investors are skeptical about the potential delay for the new stimulus package as well as potential lockdowns in Europe as daily new pandemic infections rise.”
Rick Sharga, executive vice president for RealtyTrac in Irvine, California, also anticipates rates remaining just below 3 percent.
“There’s no reason to expect rates on the average 30-year fixed-rate mortgage to go up or down significantly in October. The Federal Reserve has made it clear that they plan to maintain a very low interest rate environment for the foreseeable future,” notes Sharga.
But not everyone is as optimistic that rates won’t creep up.
“I believe we’ll see rates increase a slight bit, with an average of around 3.125 percent for the 30-year fixed-rate mortgage in October,” predicts Ralph DiBugnara, the New York City-based president of Home Qualified. “This is based around uncertainty concerning the November election and a continued search for a COVID vaccine.”
Mortgage rates beyond October
Fannie Mae expects the 30-year fixed rate to average 2.8 percent throughout the rest of 2020 and drop to 2.7 percent, on average, next year. Freddie Mac’s most recent forecast projects rates to average 3.3 percent in the last three months of the year and then dip to 3.2 percent in 2021. The Mortgage Bankers Association, meanwhile, anticipates an average rate of 3.1 percent over this fourth quarter before edging upward – to an average of 3.3 percent – in 2021.
“The weak economic backdrop will keep mortgage rates from rising too far overall after October, but the higher rate many lenders are implementing to cover the refinancing fee will dilute some of the benefit to homeowners,” says McBride.
Evangelou foresees rates ticking up before the end of the year if forthcoming jobs data report better-than-expected numbers.
“It’s hard to see rates moving down too much lower than they are at the moment, but there are several factors that could push rate slightly lower over the next three months,” explains Sharga. “One is that weakness in international markets is driving more capital into US Treasuries, which suggests that yields will continue to be at or near the historic lows that have pushed mortgage rates down.”
Most agree that the biggest uncertainty looking ahead is the outcome of the November 3 election.
“This year’s election is shaping up to be historically contentious, with the threat of delayed results. Uncertainty usually throws the financial markets off their game, and it’s almost impossible to predict what effect that might have on short-term interest rates,” Sharga says.
Take advantage of low interest rates while you can
Despite these ambiguities, the decision on whether to commit to a purchase or refinance loan right now would appear to be a simple one for creditworthy borrowers who can count on reliable wages.
“Now is a great time to capitalize on low interest rates. I do not see them going lower. The opportunity that is available now may not be available later. And with money being this cheap to borrow, financially it will not make much more sense than this in the near future,” DiBugnara says.
Remember, too, that your purchasing power is amplified in a low-rate environment, meaning you can get more home for your money.
“These ultra-low rates significantly decrease the cost of borrowing for buyers,” says Evangelou. “Compared to a year earlier, mortgage rates have dropped more than 70 basis points. Consequently, the monthly payment for a $400,000 loan dropped by nearly $160.”
However, enticing rates shouldn’t be the only deciding factor.
“Let your financial readiness – sufficient savings, strong credit, modest debt – and the stage of life you’re at be the primary determinants of when to buy a home,” McBride says. “That way, the odds of success will be in your favor, regardless of where rates are.”