How To Fix Your Mortgage Rate
Comparing your current deal with alternatives will allow you to make an informed decision to either stick or switch to a better rate which could save you hundreds in the long run.
- The rate – factor in monthly payments and outstanding debt
- The type of mortgage – fix, tracker, SVR
- Payment deadlines
- Switching fees – you may owe an early repayment charge if you decide to switch
- The loan to value figure – this is the proportion of the homes current value you borrow
- Introductory deal deadline – some fees are reduced for the initial few months but will soon rise so check when this ends
Daryl Fairweather Chief Economist At Redfin
Fairweather believes the long-term trend will be rising mortgage rates. The Federal Reserve has said it plans to taper their bond purchases and to start raising interest rates next year, Fairweather says. If that were to happen, then you should expect mortgage rates to rise. With the mortgage spike in late September, it seems like its already happening. Her advice to homebuyers wanting to lock in a low rate is to consider buying sooner rather than later.
But in many areas, the housing market is challenging for buyers. One reason competition is stiff is because housing demand has outstripped supply. The good news is that buyers arent facing quite as much competition right now as they were earlier in the year. Roughly 59% of home offers faced competing bids in Aug. 2021, which is down from 72% in April, according to Redfin. But that doesnt mean you should expect to scoop up a home at a discounted price. Prices arent going to come back down. Theyre high. Theyre going to stay high, Fairweather says.
However, with less competition, you might have more flexibility with your offer terms and be able to include buyer protections, such as an appraisal contingency, which wouldnt have been an option a few months ago.
What A Rise In Interest Rates Would Mean For You
More expensive borrowing
Mortgages will become more expensive when rates rise.
If you are on a variable rate mortgage deal, your rate will increase in line with the Bank of Englands changes.
If you are on a fixed deal, you wont be affected by higher interest rates until your deal expires.
If you are about to buy a home or remortgage, it might a good idea to opt for a fixed rate deal to lock in a lower rate for the next few years. If you are shopping for a mortgage, check out our comparison tool.
Better savings rates
The good news is that a rise in rates could lead to more competitive savings deals coming onto the market.
If interest rates on savings accounts increase you can earn more on your money.
But if rates do go up, dont assume your savings account will automatically increase. You should keep an eye on the best deals we have outlined some of them here.
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What Does The Base Rate Mean For My Money
If interest rates are low, this makes borrowing cheaper. This encourages individuals and companies to borrow more and spend more money.
In this scenario, the rate of inflation tends to rise, meaning the purchasing power of your money is falling.
Alternatively, if interest rates are high, people would rather save because they get a higher return and borrow less because its expensive.
In this scenario, the rate of inflation will probably fall, meaning the purchasing power of your cash will be remain relatively steady.
If inflation keep rising as it has been (meaning goods and services get more expensive, the MPC may move quickly to vote for a rate rise sooner than expected next year, says Sarah Coles, personal finance analyst at Hargreaves Lansdown.
However, it would be an unpopular course of action with looming tax rises already hard to digest for many consumers, she adds.
To find out how an interest rate rise could impact mortgage rates in the UK read our article: Is now a good time to buy a house?
The Best Time To Lock A Mortgage Rate
Whether you’re getting ready to buy your first home or you’ve done this before, you’ll benefit from discovering the best time to lock in a mortgage rate. Understanding how it works and what it’s for can help make the homebuying process a little easier.
When paying off a mortgage, buyers need to pay interest on the money borrowed. The money that you borrow initially is called the principal, and the interest gets charged as a percentage of that principal.
The interest rate for your mortgage will ultimately determine how much interest you’ll pay over the life of the loan. Therefore, the lower the mortgage interest rate is, the better.
What Type Of Mortgage Do You Need
First-time homebuyers can walk into a mortgage brokerage office or visit an online lender without knowing what kind of mortgage they need. But it’s always better to have an idea of what you’re shopping for, especially since you can’t control other factors such as home prices and current rates.
Mortgage loan types include:
Lock Your Mortgage Based On Your Needs
Every homebuyer has their own unique circumstances, so theres no universal time to lock in a rate. It depends on you, the markets and your financial situation.
Some people are more comfortable locking in early on, while others prefer to gamble on fluctuations. One sensible rule of thumb is to lock in your rate when theres a scenario that works within your needs and budget. You need to assess how much risk youre comfortable with and go from there.
We know theres a lot to think about when buying a home. Hopefully, this article has made it easier to understand locking in mortgage rates. For help with this or any other parts of the mortgage process, speak to one of our home lending advisors.
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If The Debt Limits Not Raised In Time All Bets Are Off
Rates could fall if a new, deadlier COVID variant rakes the globe, or if the United States or an ally gets involved in a military conflict, or if the financial markets are struck by some other shock.
If Congress didn’t increase the debt limit and the country went into default, the effect on mortgage rates would be unpredictable. The United States has never defaulted on its debts.
If U.S. government IOUs lost value and became untradeable, the effect on financial markets could be catastrophic, but we don’t know exactly what that calamity would look like. In a government default, borrowers might find it hard or impossible to get mortgages, and rates might skyrocket temporarily.
It’s also possible that the executive branch would find a workaround that would spare the financial markets from turmoil.
Will Interest Rates Rise In 2021
It is unlikely that rates will increase this year, despite the fact that the Bank of England expects inflation could head above 4% by the end of 2021.
However with higher energy, fuel, transport and food costs, the inflationary pressures appear to be getting worse and not better which might make a rise in interest rates in 2022 more likely, according to the governor Andrew Bailey.
One aspect holding the Bank of England back on a rise through fear of choking off a recovery might be the recent slowdown in the growth of the UK economy.
A central banks job is to keep inflation in check and it can do this by altering interest rates in an economy. It aims for a healthy inflation rate of 2%.
When rates are low, inflation tends to rise and when rates are high, inflation tends to fall. So if the central bank increases interest rates, inflation should fall.
We explain more on the relationship between interest rates and inflation here.
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Boost Your Credit Score
To snag a top rate, you’ll need a credit score in the mid-700s or higher, generally speaking. If your score needs work, start by paying all your incoming bills on time. Also, maintain long-standing credit accounts, because they’ll help boost your score, too. And be sure to check your credit reports for errors. If there’s a mistake on your credit report, it could drag your score down. As such, fixing errors could result in a major improvement.
How Is My Mortgage Interest Rate Determined
Lenders determine your mortgage interest rate based on the type of loan you take out, your credit score, and the overall loan amount, as well as your down payment amount and the length of the loan.
- Loan Type: Government-backed loans are handled differently than conventional loans.
- : People with high credit scores generally receive lower interest rates. Although those with lower credit scores may still qualify, their mortgage terms may not be as favorable.
- Loan Amount: Your mortgage rate will be influenced by the total amount of money you need to borrow. Higher amounts tend to suggest higher interest rates.
- Down Payment Amount: A higher down payment can significantly lower your interest rate.
- Length of Loan: Long-term loans tend to bring lower monthly payments with higher interest rates, while short-term loans bring higher monthly payments and lower interest rates.
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What Do The October Mortgage Rate Trends Mean For Refinancing
If you havent locked in a lower rate in the last few years, you could reduce your interest rate significantly and cut your monthly payment while saving on interest in the long term. Having more equity also opens the door to the possibility of doing a cash-out refinance.
While a cash-out refinance will increase your loan balance, it can save you money in other ways. For example, your mortgage rate is likely to be much lower than your credit cards APR. A cash-out refinance could be an effective way to consolidate your debt with a lower interest rate.
What Are Current Mortgage Rates Today
For today, Friday, October 15, 2021, the average 30-year fixed mortgage rate is 3.200% with an APR of 3.370%. The average 30-year fixed mortgage refinance rate currently is 3.170% with an APR of 3.300%.
Looking at mortgages with shorter loan terms, currently, the average 15-year fixed mortgage rate is 2.430%, with an APR of 2.680%. And the average 15-year fixed refinance rate is 2.410%, with an APR of 2.600%. The average 20-year fixed mortgage rate is 3.070%, with an APR of 3.230%. And the average 20-year fixed refinance rate is 3.030%, with an APR of 3.170%.
For adjustable-rate loans, we are seeing the average 5/1 ARM loan rate of 2.800% with an APR of 3.910%.
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Low Rates Can’t Last Forever Though
Rates are unlikely to go up any time soon, but no one knows that for sure. If the economy begins to improve or inflation trends higher, then rates could rise quickly.
Fannie Mae and Freddie Mac, two government-sponsored mortgages entities, are also set to impose a fee in December that could send refinance rates higher. This fee has already been postponed once due to industry outcry so there’s no guarantee it will go through, but if it does, it will impact your mortgage refinance rate.
The bottom line is, nobody has a crystal ball to predict the future. If you’re considering a home purchase or refinance, make sure your finances are in the best shape possible and compare rates with several leading mortgage lenders. If you qualify for a rate you’re happy with and can afford the monthly payments, lock it in now. Don’t wait in the hope rates will fall further and risk missing out altogether.
Will Mortgage Rates Rise Or Fall In 2021
Leading housing agencies are expecting an average 30year mortgage rate of 3.03% in 2021.
Thats pretty incredible.
Until 2020, the lowest 30year rate on record was 3.29%. Now, experts are saying interest rates could remain well below that for a year or more to come.
This bodes well for home buyers and refinancing homeowners next year. Low rates mean expanded buying power, cheaper monthly payments, and huge savings.
But remember, theres always volatility in the mortgage market.
Dont hinge your home buying or refinancing plans on a favorable prediction. If youre ready to lock a rate now, its a great time to do so.
In this article
|Average of all agencies||3.03%|
Of course, this is a tick above current mortgage rates. 30year fixed rates were averaging 2.80% at the time of writing, according to Freddie Macs weekly survey.
Does that mean rates are done falling, as theyve done throughout 2020? Could it mean rates are about to rise?
Well, that depends on who you ask.
Should You Fix Your Mortgage Rate Now
As interest rates are so low, it may be a good idea for you to consider remortgaging now. Here are some tips:
- Move quickly: the best fixed-rate mortgage deals tend to disappear fast if there is a hint rates will rise so get in there quick.
- Charges and fees: watch out for any early-repayment charges or exit fees to switch. Other costs include: arrangement fee, valuation fee and the cost of a solicitor. It may work out cheaper in the long run for you to pay the fees and charges, so get out the calculator.
- Use a mortgage calculator: remortgaging to a lower interest rate can save you a lot of money. Use a mortgage calculator and remember to factor in any fees and charges.
- Shop around: find the best deal on the market by shopping around. Try out our free mortgage comparison tool.
- Get help: get advice from a mortgage adviser or broker if you arent sure. An independent financial advisor can also help with your future financial planning.
- Read Times Money Mentor: we have lots of articles, independent best buy tables, Q& As and real life stories on our website.
Find out more: Seven tips on how to get a mortgage
Mortgage Rates Could Stay Relatively Low In 2022
So, will mortgage rates stay low in 2022? That really depends on what you mean by the word low.
Recently published forecasts from Freddie Mac and the Mortgage Bankers Association suggest that home loan interest rates could rise gradually between now and next year. But both groups expect the average rate for a 30-year fixed mortgage to remain below 4% into the second half of 2022.
The general consensus between these forecasters is that mortgage rates probably wont stay as low as they are right now into 2022. But they will still be relatively low from a broader historical standpoint.
The first forecast comes from the Mortgage Bankers Association. In August 2021, the industry group offered a long-range outlook for mortgage rates extending through 2022. Clearly, they do not expect mortgage rates to stay as low as they are right now. Instead, MBAs researchers predicted that rates would rise gradually over the coming months and perhaps climb above 4% by the second half of 2022.
Specifically, they predicted that the average rate for a 30-year fixed mortgage loan would hit 3.5% by the last quarter of this year. Looking into 2022, they expect them to average around 4% by the third quarter and 4.2% by the fourth quarter.
Translation: They expect mortgage rates will stay historically low into 2022, but will be higher than where they are right now. Based on their most recent outlook, anyway.
You Might Save Thousands By Correctly Predicting What’s Going To Happen Next With Mortgage Rates
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If the red-hot housing market indicates anything, it’s that buyers are loving the low mortgage rates. But how long will mortgage rates stay low?
How Much Will The Base Rate For Mortgages Increase By
- 0.25 percent in November
- 0.5 percent by February
- 0.75 percent later in 2022
According to the Guardian, a family with a £200,000 mortgage over 20 years, with a variable interest rate at 3.59 percent will pay an additional £15 a month if the rate goes up by 0.15 percent as it is expected to next month.
If it goes up again by another 0.25 percent in early 2022, the same family will pay an extra £25 per month, which adds up to around £500 more each year.
This article does not equate to financial advice.
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Forecast: A Slight Increase Over The Coming Months
Freddie Mac isnt the only group predicting that mortgage rates will rise slightly as we move into the second, third and fourth quarters of 2021. Analysts from the Mortgage Bankers Association and Realtor.com feel the same way, to varying degrees.
Last month, a pair of economists from the MBA said they expect mortgage rates to remain low overall during 2021, but with a slight uptick in the months ahead. They also pointed to the Feds actions in all of this.
According to Mike Fratantoni and Joel Kan of the MBA:
The Federal Reserve this month reaffirmed their commitment to keep shortterm rates at zero for the foreseeable future, noting the slowing pace of economic growth due to the intensification of the pandemic. We fully expect that they will maintain rates at this level for years.
MBAs analysts said that 30-year fixed mortgage rates averaged 2.8% during 2020. Looking ahead, they expect the annual average to increase to 3.2% by the end of 2021.
That might not seem like a huge increase and its not, in the grand scheme of things. But when you add on the very real possibility of higher home prices, it adds up. Home buyers who postpone their purchases until later this year could pay a price for their hesitancy.
Similarly, the research team from Realtor.com® said they expect mortgage rates to remain in their current low range for most of this year, with a gradual increase between now and the end of 2021.