Loan Comparisons

Mortgage Rate Comparison in 2018

Dec 5, 2018, 10:58 AM | Robin Johnson
A home with a mortgage rate comparison chart superimposed over it

Several major organizations make predictions about mortgage interest rates every year. Their forecasts can give you an idea of which way the trend is going, and if mortgage rates seem to be rising, it could be a good idea to buy now in order to lock in a lower rate.

How These Comparisons Work

The organizations making predictions, including Fannie Mae, the National Association of Realtors, the Mortgage Bankers Association, and others, typically compare mortgage rates at the beginning of the year to rates at other set points throughout the year.

In general, the type of mortgage they compare is the most common: the 30-year fixed rate mortgage. Based on their most recent mortgage rate comparisons, it seems like the major trends are pointing towards interest rates continuing to go up through 2020.

So, if you have a property in mind already or you are thinking of looking for a house, this might be a great time. If you're waiting for mortgage rates to drop, it probably won't happen for the next couple of years.

How Their 2018 Predictions Have Shaped Up

Back at the end of 2017, many of these organizations made their predictions for mortgage rates in 2018. Now that we're halfway through the year, let's see how they did, and take a peak at what the rest of the year might have in store.

Forecast from the Mortgage Bankers Association

The Mortgage Bankers Association (MBA) publishes a forecast every month, and in 2017, their December forecast also included quarterly predictions for 2018. Their predictions indicated a steady trend of increasing interest rates throughout the year:

  • 1st Quarter: 4.3%
  • 2nd Quarter: 4.5%
  • 3rd Quarter: 4.7%
  • 4th Quarter: 4.8%

That's an increase of about 0.5% for the year, which can end up costing a borrower tens of thousands of dollars over the life of their 30-year loan.

In addition to 2018, the MBA also predicted an average rate in 2019 of 4.9% and an average in 2020 of 5.3%, which is much higher than in 2017, when the average was below 4%.

It's interesting that the actual average interest rate at the end of the third quarter was 4.72%, very close to what the MBA predicted.

Forecast from Fannie Mae

The mortgage enterprise Fannie Mae made these forecasts for 2018:

  • 1st Quarter: 4.0%
  • 2nd Quarter: 4.1%
  • 3rd Quarter: 4.1%
  • 4th Quarter: 4.1%

They predicted mortgage rates to barely rise, which has turned out to be very wrong. Their predictions did much better in 2016 and 2017, so they could be right again in the future.

Forecast from Freddie Mac

The mortgage corporation Freddie Mac has done slightly better than Fannie Mae with their forecasts for 2018:

  • 1st Quarter: 4.1%
  • 2nd Quarter: 4.3%
  • 3rd Quarter: 4.4%
  • 4th Quarter: 4.6%

Now that it's over, we can see that Freddie Mac's forecast of 4.4% for third quarter was a little low compared to the actual 4.72% average interest rate recorded at the end of September.

Forecast from the National Association of Realtors

This organization seemed to get their forecast for the third quarter pretty close to reality:

  • 1st Quarter: 4.2%
  • 2nd Quarter: 4.5%
  • 3rd Quarter: 4.6%
  • 4th Quarter: 5.0%

The sudden jump they predicted to 5% for the end of 2018 seems pretty extreme. It's possible that they want to sell urgency. As real estate brokers, they do have the incentive to encourage people to buy quickly.

Forecast from Zillow

The online real estate database company Zillow surveyed about 100 experts to find their forecasts for 2018. Their survey found a median interest rate of 4.5% for the year and a high prediction of 4.7%.

Since the average interest rate was actually 4.72% at the end of the third quarter, it's possible that it could rise even higher by the end of the year.

A Final Note

With all of these predictions, it's important to note that the average mortgage interest rate is what is being discussed.

This average rate is compiled from many different locations, types of buyers, and property. Because of all these variables, lenders can and do still offer rates that are lower, as well as ones that are higher. If, for example, an average is 4.4%, lenders might actually be offering rates between 3.5% and 7.4%.

Your actual mortgage rate will be determined by your personal credit history, how large your mortgage is, and how large of a down payment you can afford.

Why Interest Rates Will Continue to Rise

Experts from the largest banks in the US all seem to agree that interest rates will continue to rise through 2020, unless a recession pushes prices back down.

Though it may make buying a home harder for some people, rising rates aren't automatically bad. Sometimes they can be the signal of a healthy economy.

That's because lenders tend to base their lending and interest rates on the prime interest rate that gets set by the Federal Reserve Bank and the central banks. This rate is determined by what they feel will help our economy be as healthy as possible.

The Fed and these other banks have found that it's easier to manage inflation than it is to manage deflation. During deflation, when the prices of everything are plummeting, people actually buy less, businesses produce less and lay people off, and sometimes banks collapse as people withdraw their money.

So, the Federal Reserve's theory is that it's actually to our benefit to have a little bit of inflation instead of going back into a recession.

So, in order to prevent a recession, it looks like the Fed will probably keep rates rising for the next couple of years until the economy stabilizes.

Now Is Still a Good Time to Buy a Home

Because of the rise of the average mortgage interest rate, it might be a good time to buy or refinance a home, before rates rise too much higher.

To get pre-qualified, contact Elevate Mortgage Group today.

Robin Johnson