How President Biden’s administration can affect mortgage rates
Biden took office on Wednesday, but interest rates didn’t seem to take much note. Here’s the outlook for the year ahead.
A brief timeline:
- December 31, 2020: The 30-year fixed rate hits a record low of 2.67%.
- January 14, 2021: The 30-year fixed rate jumps to 2.79%.
- January 20, 2021: President Joe Biden is sworn into office.
- January 21, 2021: The 30-year fixed-rate hovers at 2.77%.
With 2020 finally rounding the corner, many Americans are feeling a sense of relief and renewed optimism. But while Biden’s taking office on January 20th didn’t noticeably affect mortgage interest rates, the question remains — will interest rates rise in 2021?
The short answer is it’s possible. While the Federal Reserve has indicated that it has no intention of raising rates anytime soon, industry experts predict the Fed may need to offset inflation by increasing interest rates in 2021. If that happens, that means mortgage rates will rise too.
How much will mortgage rates rise in 2021?
Predictions vary, but most financial experts agree rates could move between 3% and 4% in 2021, depending on the pandemic and the progress of vaccines. According to the The Mortgage Reports, combined forecasts from Fannie Mae, Freddie Mac, the Mortgage Bankers Association and other agencies predict an average 30-year mortgage rate of 3.03% in the coming year.
And while rates have risen slightly in January, they’re still remarkably cheap compared to early 2020. This means you can still potentially take advantage of low rates and save thousands in interest payments over the long term. This is especially true for buyers and refinancers with FICO scores of 720 and up.
Besides low rates, first-time homebuyers may also benefit from Biden’s revamped First Down Payment Tax Credit in 2021, designed to help homebuyers overcome one of the main obstacles to buying a home — coming up with a down payment.
What is Biden’s First Down Payment Tax Credit?
While details are a bit scarce, the Biden administration is proposing a plan to assist first-time homebuyers with a tax credit of up to $15,000 at the time of home purchase. That’s twice the amount of the existing tax credit, which caps out at $7,500 for both single and married couples filing together.
With 37% of buyers reporting having difficulty coming up with a down payment, this new tax credit, if approved, would give homebuyers up to $15,000 at closing that could be towards the down payment. The downside, of course, is that this could cause home prices to increase as more buyers enter the market.
How to lock in a low mortgage rate in 2021
The best way to get a low rate on a mortgage in 2021 is to have a FICO score of 720 or higher, a good credit history and a regular source of income. For those looking to refinance your current mortgage, you’ll also want to have at least 20% equity in your home so you can save on PMI payments too.
The best way to determine how much your mortgage payment might be (or how much you could save with a refinance) is to use an online mortgage calculator. Then you can start comparing different lenders to see what interest rates and loan programs they’re offering. Many lenders offer free prequalification, so you can see your available rates without impacting your credit score.
We recommend getting at least three or more quotes from different lenders in order to bolster your position when negotiating the best rate. And lastly, be sure to lock in your rate once you’ve found a good one.