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Mortgage rates today: Friday, Jan. 15, 2021
On Friday, Jan. 15, 2021, the average interest rate on a 30-year fixed-rate mortgage fell five basis points to 2.962% APR. The average rate on a 15-year fixed-rate mortgage dropped seven basis points to 2.546% APR and the average rate on a 5/1 adjustable-rate mortgage fell seven basis points to 2.967% APR, according to rates provided to NerdWallet by Zillow. The 30-year fixed-rate mortgage is three basis points higher than one week ago and 90 basis points lower than one year ago. A basis point is one one-hundredth of one percent. Rates are expressed as annual percentage rate, or APR.
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Mortgage rates this week
Mortgage rates moved in different directions the week of Jan. 11-15, depending on the type of home loan.
The 30-year fixed-rate mortgage averaged 3% APR, up nine basis points from the previous week's average.
The 15-year fixed-rate mortgage averaged 2.61% APR, down three basis points from the previous week's average.
The five-year adjustable-rate mortgage averaged 3.02% APR, up one basis point from the previous week's average.
Sometimes the movement of interest rates defies explanation. This week was one of those times. It's worth looking past this week's mystifying movements to pay attention to the longer-term trend: The popular 30-year mortgage has risen to its highest levels since August.
Mortgage rates tend to go up when investors expect inflation to rise. The Federal Reserve has been saying since last summer that it would like to encourage increased employment and that its target for the inflation rate is to rise above 2% and stay there for a while. The central bank wants the inflation rate to average around 2% in the long run — and the Fed's favored inflation measurement has been below 2% for most of the last 12 years.
To stimulate the economy — and, therefore, inflation — the Fed cut the overnight federal funds rate to near zero percent in March and has kept it there. But the inflation rate has remained well below 2% as the economy has been stuck in the COVID-19 recession.
The inflation outlook could change with Democratic control of the presidency and both houses of Congress. President-elect Joe Biden says he will propose $1.9 trillion in emergency relief early in his term, followed by a larger stimulus plan to be proposed in February. Multiple trillions of dollars in spending could stimulate the economy enough to push inflation higher. Higher inflation would eventually lead to higher mortgage rates — but a significant increase is probably at least a year away.
January mortgage rates forecast
The year should begin with mortgage rates near historically low levels, with the 30-year fixed-rate mortgage averaging under 3%. Rates will remain low in January.
Today's mortgage rates sprouted from the pandemic and the resulting recession, in which millions of jobs withered. Some lost jobs will return in 2021, but the economy is unlikely to flourish enough to push mortgage rates significantly higher in January, or indeed the first half of the year.
It feels hollow to celebrate the benefits of low mortgage rates when they are the fruit of rampant hardship. But as Miranda Lambert sang in "Virginia Bluebell," "Even through a stone, a flower can bloom." These low rates offer homeowners an opportunity to save money by refinancing. For home buyers who qualify for mortgages, the low rates increase buying power compared with a year ago.
Big savings by refinancing
More than 6 million homeowners refinanced in the first nine months of 2020, and many millions more could save money by refinancing, according to Black Knight, a mortgage analytics company.
The average rate on a 30-year fixed-rate mortgage was around 4% APR at the beginning of 2020, and had fallen to around 3% in mid-December. Here's how a rate drop of that magnitude translates into payments on a 30-year fixed-rate mortgage for $200,000:
At an interest rate of 4%, the monthly principal-and-interest payment is $954.83.
At an interest rate of 3%, the monthly principal-and-interest payment is $843.21, or $111.62 less.
No wonder millions of people refinanced in 2020.
Because of lower rates, borrowed money goes further in 2021 than it went at the beginning of 2020. Here's the effect on buying power when the 30-year fixed mortgage rate drops from 4% to 3%:
At an interest rate of 4%, you can borrow $209,500 with a principal-and-interest payment of about $1,000 a month.
At an interest rate of 3%, you can borrow $237,200 with a principal-and-interest payment of about $1,000 a month, or $27,700 more.
Here are three caveats to this news:
Not enough homes are for sale to meet demand. Of homes sold in November, 73% were on the market less than a month, according to the National Association of Realtors. Because demand for homes exceeds supply, prices are going up fast.
Rising home prices have roughly kept pace with the increased loan affordability. The median price of an existing home went up 14.6% in the 12 months ending in November, NAR says. Meanwhile, the example above shows that borrowing power increased 13% with a 1 percentage point drop in the interest rate.
Millions of people are jobless. Without steady income, they are unable to qualify for mortgages.
2020 was a brutal year. Here's hoping that 2021's economic recovery brings good jobs to people who were laid off or endured reduced income. When people are ready to buy homes in 2021, low mortgage rates will await them.