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Mortgage Rate Forecast 2014 and 2015

Mortgage Rate Forecast 2014 and 2015

The financial crisis of 2007 and the Great Recession in 2008 brought us the lowest mortgage rates in our lifetime. Mortgage rates today are slightly higher than the record lows but when you compare the past several decades, rates are still low. In 2014 and 2015 mortgage rates are forecast to move higher but the expected increases are not too much.

Historical Look at Average Mortgage Rates

Over the past three decades, average 30 year mortgage rates as reported by Freddie Mac have varied by over 15 percent. Late in 2012, average 30 year mortgage rates hit a record low of 3.35 percent.  Rates moved higher in 2013 but current rates are only about 1.00 percent higher.

The record high for average 30 year mortgage interest rates in Freddie Mac's survey was 18.45 percent back in October 1981. This record high for mortgage rates was brought on by record high inflation, which in October 1981 was at 10 percent on an annualized basis. High inflation back in 1981 sent 10 year bond rates to over 15 percent, which in turn sent mortgage rates to record highs.

The higher point for 15 year mortgage rates as 8.80 percent in December 1994. Historical data from Freddie Mac on average 15 year mortgage rates only goes back as far as September 1991. If Freddie Mac had records for 15 year mortgage rates going back 30 years, average rates probably also hit double-digit highs in October 1981.

15 year mortgage rates hit record lows late in 2012 and have since moved about 1 percent higher. In December 2012, average 15 year mortgage rates in Freddie Mac's survey hit a record low of 2.66 percent. In April 2013, average 15 year rates tied the record low of 2.66 percent.

Mortgage Rate Forecast 2014 and 2015Average Conforming Mortgage Rates Today

Current average 30 year conforming mortgage rates this week are at 4.54 percent, up slightly from last week's average 30 year mortgage rate of 4.49 percent. While 30 year rates have been hovering around 4.50 percent, there are still many lenders quoting 30 year rates around 4.00 percent and slightly lower if you're willing to pay points to buy down the rate.

Mortgage rates on 15 year conventional mortgages are also higher this week over last. 15 year mortgage rates today are averaging 3.55 percent, up from the prior week's average 15 year rate of 3.48 percent. As with 30 year rates, there are many lenders quoting 15 year rates below the average. The lowest 15 year rates on our rate table are currently at 3.00 percent with 2 mortgage points.

Current Jumbo Mortgage Rates

In 2013, jumbo mortgage rates on both 30 year and 15 year mortgages also moved higher. The current average 30 year jumbo mortgage rate is at 4.63 percent, up from last week's average 30 year jumbo rate of 4.58 percent. The best jumbo rates available right now are around 4.00 percent with points.

15 year jumbo mortgage rates are currently averaging 3.92 percent, up from last week's average 15 year jumbo rate of 3.88 percent. The lowest 15 year jumbo refinance rates available are currently at 3.25 percent with points. Buying down a mortgage rate with points lowers your overall monthly mortgage payment.

Mortgage Rates Forecast for 2014

Now that we have a historical perspective of where mortgage rates have been and we know where current rates are, let's look into forecasts for average rates in 2014. The Mortgage Bankers Association has forecasted average 30 year mortgage rates will increase to 5.1 percent by the end of 2014.

If the MBA's forecast is correct, we are only looking at rates to increase another .50 percent for the entire 2014 calendar year. This is good news for the housing market, which has been recovering but is still on shaky ground.

2015 Forecast for Mortgage Rates

Moving onto 2015, average 30 year mortgage rates will continue to move higher but the increases will be even smaller. The MBA has forecasted average 30 year rates will increase to only 5.3 percent by the end of 2015, virtually flat with the 2014 forecast. Of course the MBA's forecast could be wrong, especially if economic growth really picks up and inflation becomes a concern.

The Federal Open Market Committee (FOMC) has released economic forecasts for the next several years and inflation isn't expected to be a concern. The PCE inflation rate for 2014 is forecasted to only be between 1.6 percent and 1.8 percent. In 2015 and 2016, the rate is only expected to be as high as 2.0 percent. Inflation remaining that low will keep a lid on any increases in bond rates and mortgage rates.

Higher Home Prices Will Help Many Homeowners Refinance

Only a slight increase in average rates are forecasted for 2014 and 2015 but continued higher home prices will help many homeowners refinance their mortgage. Since the housing bust, there are millions of homeowners who would like to take advantage of record low refinance rates but can't because they don't have enough equity built up in their homes. Home prices have increased a cumulative 20 percent the past two years and according to the National Association of Realtors, are expected to increase another 6 percent in 2014.

If you tried refinancing your mortgage in the past but didn't have enough equity, you should look into it again, especially if your current 30 year mortgage rate is 5.5 percent or higher. If your loan rate isn't 5.5 percent or higher, you may also want to consider refinancing to a shorter term mortgage.

15 year refinance rates can be found as low as 3.25 percent and refinancing to a shorter term loan will save you plenty of money. You can use a mortgage calculator to see the difference between a 30 year loan and a 15 year loan. Depending on the loan amount, you can save tens of thousands or even hundreds of thousands of dollars in accumulated interest.

Higher Mortgage Rates and Home Prices Make Now a Good Time to Buy

If you have been on the sidelines waiting to buy a home now is probably the best time in your lifetime. While mortgage rates are moving higher, the increases are only forecasted to be less than 1.00 percent over the next two years. This is good news but any increase in rates lowers the loan amount you can quality for.

Recent FHA changes to qualified loans have lowered the debt-to-income ratio from 45 percent to 43 percent. This means your monthly debt payments including your mortgage can't exceed 43 percent of your income. This rule change also lowers the amount you can borrow to buy a home.

The 20 percent increase in home prices for past two years combined with the expected 6 percent increase in 2015 means that with prices on the rise, there will be less home affordability in the near future.

Author: Brian McKay
January 6th, 2014