Mortgage Interest Rates Forecast

Holden LewisMay 22, 2020

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May mortgage rates forecast

Mortgage rates are likely to stay near historical lows in May and for a long time after, if the Federal Reserve gets its way. The Fed has succeeded so far in what it set out to do at the start of the COVID-19 crisis: push mortgage rates down and keep them there. At its regularly scheduled policy meeting April 29, the central bank announced that it would keep buying mortgage-backed securities to keep credit flowing.

NerdWallet's coronavirus resources page tracks the latest developments, including information on loan and payment relief, ways to cope and how to best manage your personal finances.

If you can't make your full mortgage payment, or you're worried that you won't be able to make the payments soon, contact your mortgage servicer immediately. Under provisions of the CARES Act, you may be eligible for mortgage forbearance: temporary relief in which the lender allows you to make lower monthly payments, or no payments at all, for a specified time. NerdWallet's article about mortgage forbearance explains the basics.

Keep in mind that a forbearance may prevent you from getting another mortgage for at least three months. Lenders are unlikely to approve you for a mortgage until you have made three on-time payments following the forbearance. During that period, you probably won't be able to get a mortgage to buy a home or to refinance.

See what types of mortgage relief programs are available to homeowners who are worried about making their house payments due to the coronavirus outbreak.

To get help, you will need to contact the mortgage servicer that collects payments. See an alphabetical list of mortgage servicers with contact information.

Here are general guidelines for what to do if you can't pay your mortgage.

Money is the answer

In late February, there was uncertainty about how the coronavirus would affect the economy. Mortgage rates fell as a result of that uncertainty, and then, in March, swung wildly up and down amid market turmoil. The Federal Reserve stepped in, pledging to pour as much money into the mortgage finance system as necessary "to support smooth market functioning."

It's a lot of money. The Fed has bought more than half a trillion dollars' worth of mortgage-backed securities since the middle of March. By buying mortgage-backed securities, the Fed gives lenders assurance that they'll have enough money to keep funding mortgages to consumers. The Fed's aim is to keep mortgage rates stable by acting as a reliable buyer.

The tactic is working: Mortgage rates settled at low levels in early Apr

il and remained there. From April 3 to the end of the month, the average rate on the 30-year fixed-rate mortgage remained comfortably between 3.25% and 3.5% APR, according to NerdWallet's daily mortgage survey. The 30-year fixed averaged 3.363% APR in April, the lowest monthly average in the history of NerdWallet's survey.

To May and beyond: Fed aims for low, stable rates

If the Fed wanted mortgage rates to be higher, it would cut back more on its purchases of mortgage-backed securities. That's not happening anytime soon. The Fed said in its most recent announcement that it foresees "considerable risks to the economic outlook over the medium term." In a news conference, the Fed's chairman, Jerome Powell, defined the medium term as "the next year or so," depending on the course of the COVID-19 pandemic and its economic consequences.

The Fed's policy on mortgage rates applies to most home loans — those that, in one way or another, have federal backing. But jumbo mortgages aren't backed by the federal government, and they haven't been as readily available during the COVID-19 crisis because the secondary market for them has dried up.

What are the current mortgage rates today?

On Friday, May 22, 2020, the average rate on a 30-year fixed-rate mortgage dropped eight basis points to 3.298%, the average rate on the 15-year fixed-rate mortgage plunged 15 basis points to 2.722% and the average rate on the 5/1 ARM fell three basis points to 3.062%, according to a NerdWallet survey of mortgage rates published daily by national lenders. A basis point is one one-hundredth of one percent. Rates are expressed as annual percentage rate, or APR. The 30-year fixed-rate mortgage is seven basis points lower than one week ago and 101 basis points lower than one year ago.

Mortgage rates this week

Mortgage rates were little changed in the week ending May 22, while the latest housing stats verified the damage that the COVID-19 pandemic has wrought on home sales.

  • The 30-year fixed-rate mortgage averaged 3.378% APR, three basis points lower than the previous week.

  • The 15-year fixed, often used for refinancing, averaged 2.86% APR, eight basis points lower than the previous week.

  • The 5/1 ARM averaged 3.116% APR, three basis points lower than the previous week.

There has been little movement in mortgage rates this month, a sign that the Federal Reserve has succeeded in restoring stability to what it calls a critical market. Mortgage rates are hovering just above historic lows. Even so, spring homebuying season has been hit by a historic cold snap.

Buyers and sellers both have shown reluctance to close deals. Just 373,000 homes were resold in April, an 18.2% decrease from the previous April, according to the National Association of Realtors' monthly Existing Home Sales report. Such meager home sales are typically confined to January and February, which traditionally are the slowest homebuying months.

Some evidence indicates that the decline in home sales is led by sellers more than buyers. According to NAR, the number of previously owned homes for sale tallied up to 1.47 million at the end of April — a 19.7% decrease from the inventory of homes for resale at the end of April 2019.

With home resales falling 18.2% and for-sale inventory falling 19.7%, it looks like home buyers are pursuing a dwindling number of homes on the market. Later this year, buyers won't have a ton of brand-new houses to choose from, as housing starts plunged 29.7% in April compared with the previous April, according to the Census Bureau.

Homeowners have a financial incentive to list their homes for sale: Prices inflated in April, even as sales deflated. The median home sold for $286,800 — a 7.5% increase over the median price in April 2019. Today's low mortgage rates soften the impact of rising home prices.

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