Mortgage Interest Rates: What to Expect Moving Forward
Unprecedentedly low mortgage interest rates have been with us for some time now. Currently at about
3.3 percent, conventional mortgage interest rates are half of the recent historical average of seven
Percent. (Source: U.S. Federal Housing Finance Agency). The difference between seven percent and 3.3
percent in interest rates has a significant impact on the loan amount for which a household can qualify.
For example, the minimum income required for a $350,000 home at a seven percent interest rate and a
20 percent down payment, would be $90,614. If the mortgage rate is reduced to 3.3 percent, minimum
income required for the same home would be $65,151—a difference of $25,463, which is 28 percent
lower than the income required for a seven percent interest rate loan. The question on the minds of
many people is “What is going to happen to mortgage interest rates in the future?” We looked at the
forecasts of various housing experts, including Fannie Mae, Freddie Mac, Wells Fargo, Moody’s
Analytics, NAR, MBAA....Going forward, some expect the rates to rise more quickly than others. For the
second quarter of 2013, the consensus is that rates will increase to 3.6 percent. The rate is expected to
continue increasing throughout this year and beyond. The year is projected to end above four percent,
although some forecasters believe the rate will start increasing at a faster pace than what other experts
believe, and others even foresee the rate as 4.4 percent by the end of the 2013. Next year will continue
putting pressure on interest rates with mortgage interest rates projected to increase to 4.6 percent, or
5.5 percent--as forecasted by Moody’s. Both NAR and Freddie Mac anticipate rates close to five percent
even by the beginning of 2014. However, what does a rate increase from 3.5 percent
to 4.6 percent mean in terms of monthly mortgage expense? It means that the mortgage payment on a
home priced at $350,000, excluding taxes and insurance, will increase from $1,660 per month to
$1,838. Source: CAR “Market Snapshot.”
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