- Mortgage rates have stayed below 3% for over two months, and that trend should continue in September
- Housing inventory is improving slightly, but remains extremely low. That means homebuyers still have to contend with high prices
- You have time to refinance to a better deal because the Federal Reserve is likely to continue its low-rate policies in the coming months
The current low mortgage rates are great news for homeowners who haven’t locked in a new low refinance rate recently. But, homebuyers still face an uphill battle with rapidly rising sale prices potentially wiping out any savings from favorable rates.
The average 30-year fixed mortgage rate has been lingering right around 3% for months, but some experts predict mortgage rates will be higher by the end of 2021. Barring any surprises, experts don’t expect to see rates skyrocket overnight.
Here’s what four experts predict will happen with mortgage rates in September 2021.
Castleigh Johnson, Founder and CEO with My Home Pathway
In the coming weeks, Johnson sees rates staying the same. “Rates themselves won’t drop significantly at all and I also don’t think there’s enough upside pressure to push rates much higher,” he says. Since the early days of the pandemic, the U.S. economy has made significant progress toward returning to its pre-pandemic levels. Strong economic data typically push rates higher, but there is still enough uncertainty to keep rates from increasing dramatically. “Even with that economic rebound, there’s still concerns around the impact of the virus — the Delta variant,” Johnson says.
The housing market is still hot, so homebuyers looking to lock in a deal with a low-rate mortgage still have to contend with higher prices. Even though it’s still a seller’s market, there are signs things may be getting slightly better for buyers. Prices are softening somewhat, and homes are taking slightly longer to sell, Johnson says. As a buyer, you can also be patient with your home search, as your personal circumstances allow. “I don’t see a lot of upward … rate pressure, you know, three to six months out, so you can still also delay [your home purchase] until early 2021,” Johnson says. So there’s no need to rush into a deal because you’re afraid of missing out on today’s great mortgage rates.
Mitria Wilson-Spotser, Director of Housing Policy at the Consumer Federal of America
Wilson-Spotser believes we will continue to see mortgage rates stay below 3% this month. As the economy improves, the Federal Reserve is expected to eventually reduce its current rate of mortgage bond purchasing — pushing rates higher. However, the delta variant’s impact on the economy has likely delayed those plans. “Probably later on, if not in October, we might see interest rates rise a little bit closer to 3% or possibly slightly above that,” she says.
As rates continue to stay low, that’s good news for borrowers. “If you are in a position to refinance, it’s a great time to refinance and take advantage of historically low interest rates,” Wilson-Spotser says. Homebuyers have access to the same low rates, but must contend with a competitive housing market. “We have a pretty tight real estate market,” she says. Housing inventories are low, and there aren’t enough homes being built to meet the demand. “That makes it difficult for consumers to sometimes take advantage of the benefits of the low interest rate.”
Gordon Miller, President of Miller Lending Group
For September Miller believes we’re likely to see more of the same for mortgage rates. “Steady as she goes,” he says. There is still too much uncertainty surrounding the economy and the coronavirus for rates to make a big jump in the coming weeks. “You’re just not in the calm waters yet,” Miller says. As long as these potential risks exist, rates won’t go up.
Right now is still a good time to consider refinancing. We’re near the lows again, so it’s a very good time to be evaluating your current situation prior to any change in the Federal Reserve’s policies, Miller says. While it’s impossible to predict the future, Miller expects rates to stay low through late October of this year. So you have time to shop around and find the right deal for you. As the year wears on, we could see rates begin to creep higher in anticipation of the Federal Reserve announcing changes to its policies that have kept rates low.
Willie McGuire, Area Branch Manager with Cardinal Financial
McGuire doesn’t anticipate any huge movement in mortgage rates in September. “I don’t see anything that’s gonna move the needle, drastically,” McGuire says. As we see new economic data on inflation, employment, and the Federal Reserve’s policy decisions, you can expect day to day and week to week changes, but those could balance out. “As long as consumers are patient … if we do see a quarter percent tick up, you can easily see that tick that back down.”
For borrowers, this is still an exceptionally low-interest rate environment, so the opportunities to save are there, but it’s a good idea to shop around. “Talk to reputable local lenders,” McGuire says. “Get a quote from your bank, but also look at the turn times. Look how quickly they can complete the loan transaction for you.” And remember, that the interest rate isn’t the only thing to consider and that advertised rates aren’t always what you’ll qualify for. “A lot of lenders put out teaser rates. Teaser rates are designed to drive traffic and kind of create buzz,” McGuire says. “Unfortunately a lot of consumers feel duped at the end of day when they find out it wasn’t what they thought it was.” You may not qualify for those exceptionally low rates or the rate could have extra fees built in, making it more expensive overall.
What Does the September Rate Forecast Mean for Refinancing?
As home prices continue to increase, many homeowners who missed out on the refinancing frenzy have another opportunity to think about refinancing. Having more equity can help you qualify for a lower rate or save money each month by eliminating private mortgage insurance (PMI).
As a rule of thumb, you’ll want to be able to reduce your interest rate by at least 0.75%-1% for a rate and term refinance to make sense. But refinancing isn’t as straightforward as comparing the rate. There are fees to consider, and a low interest rate could be loaded with extra lender fees, such as discount points. So it’s important to compare the rate and the fees listed on your Loan Estimate.
A Refinancing Example
Here’s an example showing how a refinance can reduce the interest you’d pay over the life of a loan and lower your monthly payment:
- Home purchase value: $320,000
- 10% down payment: $32,000
- 30-year fixed mortgage
- 4.25% interest rate on the $288,000 loan (after down payment)
After making payments for four years, your loan balance would be about $266,851, according to the NextAdvisor mortgage calculator.
By replacing your existing mortgage with a 30-year refinance loan at 3.25%, you would cut your monthly payment by $255 and lower the interest by nearly $23,000.
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But refinancing closing costs can range from 3% to 6% of the loan amount. All those fees cut into what you’re saving, and if you sell or refinance again before your break-even point, then you may not end up saving anything at all. For the $266,851 refinance, you could pay $8,000 to $16,000 in closing costs. With your $255 a month in savings, it would take roughly 2.5 to 5 years to break even.