Now that President Joe Biden is in the White House, what does that mean for America’s other houses — and the mortgage rates used to finance them?
As the country entered 2020, before the pandemic started battering the economy, rates on 30-year fixed-rate home loans were averaging 3.72%. They ended last year at a breathtakingly low average of 2.67%, according to mortgage giant Freddie Mac.
A decline that huge can mean major savings on a loan as immense as a mortgage.
Prospective homebuyers, and homeowners still needing to refinance to lower rates, are searching for any clues on where mortgage rates may head under the new president.
Thirty-year mortgage rates fell again in early January, to a record-low average of 2.65%, though lately they’ve been fluctuating.
Here’s what forecasters are anticipating for rates.
Why rates could rise under Biden
Presidents usually don’t have a direct impact on mortgage rates, but the policies of the Biden administration could influence their direction.
“Expect tax rates to rise, the Fed to offset increasing inflation with higher rates, and the economy to slow,” Guy Baker, founder of Wealth Teams Alliance, tells The Mortgage Reports.
And there’s this, from Rick Sharga, executive vice president at RealtyTrac: “Biden has called for more government investment in affordable housing, which could be funded in part by proceeds from fees attached to home sales backed by government agencies like Fannie Mae, Freddie Mac, and the FHA.”
Baker, Sharga and other experts polled by The Mortgage Reports in October predicted 30-year rates would climb to an average 3.51% in 2021 under Biden.
Why rates may not do much this year
Other forecasts look for only modest increases this year. Freddie Mac is predicting that 30-year fixed-rate mortgages will average 2.9% in 2021, and Fannie Mae — another government-sponsored mortgage company, like Freddie Mac — said rates would average just 2.8% by the end of this year.
Mortgage rates spiked in mid-January as the yields on Treasury bonds jumped. Investors were betting that having a Democrat in the White House and Democrats controlling both houses of Congress would lead to a big increase in government spending and borrowing.
But since then, rates have fallen back near their all-time lows.
“The continued spread of the virus, the introduction of new, more virulent variants, and a thus-far sluggish rollout of the vaccine all injected fresh uncertainty into markets,” explains Matthew Speakman, an economist with Zillow.
Plus, mortgage borrowers are still benefiting from the Federal Reserve’s actions to keep interest rates low. The Fed this week announced it would continue holding its key rate close to zero and would keep buying up Treasury bonds and mortgage-backed securities.
How to land low rates in 2021
If rates do eventually rise under Biden, borrowers will need to use a few not-so-secret methods to sniff out the cheapest mortgages possible.
First, you’ll want to make sure your credit score is in tip-top shape, or you’ll never be offered a super-low rate.
Then, you must shop around to find the best mortgage rates, because they can vary from one lender to the next. Research from Freddie Mac has found borrowers can save thousands of dollars by comparing at least five rate quotes, instead saying yes to the very first offer.
If rates do start to take off, a homebuyer or refinancer might offset higher borrowing costs by saving money on homeowners insurance. With a little comparison shopping, you could potentially cut the annual price of your coverage by hundreds of dollars.
