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Will mortgage rates go down in February 2020? Forecast and trends

Tim Lucas
The Mortgage Reports editor

Mortgage rates forecast for February 2020

Mortgage rates started 2020 with a bang.

The average 30-year mortgage rate hit a three-month low in late-January, touching 3.60% according to Freddie Mac.

Can rates go lower? Some think so. Economic factors and world events are suppressing interest rate levels.

But home buyers and refinancing homeowners shouldn’t become complacent.

Rates could jump at any time. If you find a low rate, lock it in. Mortgage rates are a fantastic value right now.

Compare Rates From Top Rated National Lenders and Save (Jan 26th, 2020)

Predictions for February

February could be a wild ride for mortgage rates. Market-moving news will leave rates different than they were in January. The only question is, will they be more or less advantageous for mortgage shoppers?

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Forecasts for 2020 say rates will average around 3.7%. However, that doesn’t tell you how high or low rates could go throughout the year.

Rates could be 4% for six months and 3.4% for the next six months and you still get an average of 3.7%. But when you lock matters a lot.

Rates are hovering near 3.7% now according to Freddie Mac data, so it’s an excellent time to lock in and eliminate the risk of higher rates later.

Mortgage rates next 90 days

The below chart shows past mortgage rate trends and predictions for the next 90 days based on 2020 forecasts from major housing authorities.

February 2020 Mortgage Rates Forecast Chart

Unexpected rate changer in February: Wuhan Coronavirus

Reports of a new virus originating in Wuhan, China is strangely affecting mortgage rates.

This trend could gain momentum in February.

As January came to a close, markets were watching the spread of the virus, with new cases being discovered in the US and other countries.

Mortgage rate watchers are justified in wondering how a virus could affect rates. The relationship is not exactly obvious.

Mortgage rates fall during times of economic uncertainty and lower expectations of inflation. The Wuhan Coronavirus contributes to both.

Officials are limiting travel and transportation in Wuhan, which is a major trade and export hub in China. The decreased activity and mobility in one of China’s largest cities could spark a wider slowdown that could disrupt economic growth and slow inflation worldwide.

Of course, no one wants a global outbreak, but one unexpected outcome could be lower rates throughout February and perhaps beyond.

Show Me Today's Rates (Jan 26th, 2020)

How will the January 2020 Fed meeting change rates in February?

Don’t expect much movement in mortgage rates after the January 28-29 Federal Reserve meeting.

The group has broadcasted again and again that it likes the level of its benchmark rate, called the federal funds rate.

After slicing the rate three times in 2019 — in the face of one of the greatest expansions in US history — the Federal Reserve isn’t enthusiastic to provide more stimulus to an already-hot economy.

In fact, the Fed doesn’t expect to drop rates again at all in 2020.

Unemployment is near 50-year lows, the stock market is at all-time highs, and inflation is stagnant. It’s a real “Goldilocks scenario” — meaning nearly all aspects of the economy are just right.

All this means the January 2020 Fed meeting should be a real snoozer, with no rate adjustment and no major policy shifts.

Luckily, mortgage rates are already low and don’t need an artificial push downward by the Fed.

Federal Reserve FOMC rate forecast through 2022


Will mortgage rates stay low?

Though rates may rise somewhat, we are still predicting rates below 4% through mid-2020.

That’s consistent with predictions from major housing authorities.

But just when you thought you could sit back and buy a home later this year, I have to mention how unpredictable rates are.

Back in late 2018, housing experts were calling for rates in the 5s for 2019. Rates bottomed out at 3.49%.

So does that mean that rates will hit 5% in 2020, now that experts predict sub-4% rates? It’s quite possible.

Related: 2020 mortgage rates forecast from 10 experts

The fact is that most predictions are wrong (an awkward thing to say in the middle of a mortgage rates forecast article). So don’t risk homeownership based on forecasts.

Sure, rates are supposed to stay around 3.7% through 2020 according to experts. But rates are lower than that now. So why not capture a low rate now and eliminate any and all risk of rising rates?

But if you’d still like me to make the case for lower rates, here goes.

Rate-suppressing factors include:

China trade war: Let’s face it. This issue isn’t going away any time soon. The more uncertainty the U.S.-China trade war brings, the lower rates might go. And even if we fully resolve this conflict, the U.S. economy is spooked. Manufacturers will be gunshy about turning production “up to 11” if they feel a new trade war could ruin them.

Wuhan Coronavirus: As described above, the outbreak poses risks to economic growth and lowers inflation concerns. While everyone hopes authorities contain the virus, an unexpected spike in cases would keep rates low.

Demand for U.S. financial instruments: Mortgage rates are determined by the price of mortgage-backed securities (MBS). (Learn how mortgage rates are made here.) These are financial instruments, bought and sold by investors worldwide. As rates fall in other economies (Japan and Germany are now issuing negative-rate bonds), U.S. mortgages are looking awfully attractive. Even a 3% return on investment is better than 0% or even negative. Imagine if you had to pay to keep your money in a savings account. That’s exactly what investors in many economies are doing. U.S. mortgage bonds will continue to deliver positive returns, so investors will pile in. This demand drives down consumer mortgage rates.

If you’ve been thinking about a home purchase, refinance, or home equity line of credit, this month is looking to be a great one to take action.

Show Me Today's Rates (Jan 26th, 2020)

Housing agencies nationwide are calling for rates in the high 3s for 2020.

Agency 30-Yr Rate Prediction
National Association of Realtors 3.60%
National Association of Home Builders 3.90%
Mortgage Bankers Association 3.90%
Freddie Mac 3.70%
Fannie Mae 3.60%
Wells Fargo 3.55%
Average of all agencies 3.70%
2020 Mortgage Rate Forecasts from Housing Authorities, The Mortgage Reports

To sum it up, rate predictions vary widely. Today’s rate might be as good as we’ll see for years to come, or they might improve.

Advice for February 2020: If you can find a home, buy it

Knowing what will happen in February is only half the battle. As a mortgage rate shopper, you need to know the best actions to take in light of this information.

Expect the housing market to heat up as the spring buying season approaches.

Mortgage rates are low and the housing market is hot, but it’s not all good news for home shoppers. According to the National Association of Realtors (NAR), we’re in the midst of a terribly one-sided market.

There’s just a 3.0 month supply of homes on the market, making it the biggest seller’s market since at least 1982 when the NAR started tracking data. A 6-month supply is considered an even balance between buyers and sellers.

Months’ supply has been rotating between 3.5 and 4.5 for the last five years.

In short, if you find a home to buy, buy it. There will be increasing competition for fewer homes in February 2020 and beyond.

Mortgage strategies for February 2020

In February, be watching for emerging mortgage products that will gain traction in 2020.

For home buyers, there have been few better times to be looking for a home.

Co-signer mortgage: As home prices and student loan balances rise, first-time home buyers find it difficult to qualify. Their starter incomes just aren’t high enough. That’s why parents, relatives, and friends are agreeing to co-sign on their mortgages. You can “blend” your income with the co-signer’s to qualify for more. The co-signer does not have to live in the home. Here’s how it might work: If you make $5,000 per month, you could afford a home for $280,000 assuming your debt payments are low. But you bring on a co-signer, also with $5,000 monthly income and low debts. Suddenly, you can afford $570,000. There are plenty of rules and risks for the co-signer, but this strategy could work out nicely for moderate-income home buyers, especially in expensive locales.

Bigger loan amounts: Fannie Mae and Freddie Mac just released new, higher conforming loan limits for 2020. Now, homeowners can get loans up to $510,400 without crossing into jumbo loan territory. Jumbo mortgages often require stricter qualifying requirements making them tougher to get for the average buyer. Half-million-dollar loans are now within guidelines for loans offered by nearly every bank and mortgage company in the country. In the most expensive locales such as San Francisco, an applicant can be approved for even higher loans: a 1-unit home loan can be up to $765,600 and a 4-unit home up to $1,472,550. The government has noticed the higher home prices across the country and responded in-kind to help buyers break into the housing market without needing harder-to-get proprietary jumbo loans from individual banks.

Low down payment jumbo loans: One national mortgage lender has created a 5% down loan up to $2 million with no PMI, or 10% down to $3 million with no PMI. If you’re a high-income home buyer, but don’t want to tie up all your assets with a 20-30% down payment, these types of products will be a huge benefit to you in 2020.

Buying a vacation home as your first home: In many locations such as San Francisco, Seattle, and New York, it’s just not feasible to buy as a younger person. You may end up with a mortgage payment two or three times your current rent amount. But many people are looking outside the city to buy their first homes. You can still live and rent in the city, but buy in a recreational area where homes are much cheaper. Plus, you have a nice vacation spot any time you want it. Not using it for months at a time? Rent it out on Airbnb to help make the payments. This will be an emerging trend as more people want to buy homes but find it unrealistic in their city.

Bank statement loans: If you’re self-employed, pay attention to bank statement loan programs. Lenders will review 12-24 months of your bank statements to prove your income. Many newly self-employed applicants are denied because they don’t have two years’ worth of filed tax returns (the traditional qualification method). Or, write-offs are so high that bottom-line income is too low to qualify for anything. In 2020, more lenders will accept your bank statement deposits as proof of income, allowing more renters to become homeowners.

Show Me Today's Rates (Jan 26th, 2020)

Loan product rate updates

Many mortgage shoppers don’t realize there are many different types of rates. But this knowledge can help home buyers and refinancing households find the best value for their situation.

Following are updates for specific loan types and their corresponding rates.

»RELATED: Before You Make A 20% Mortgage Down Payment, Read This

Conventional loan rates

Conventional refinance rates and those for home purchases are still low despite recent increases.

According to loan software company Ellie Mae, the 30-year mortgage rate averaged 4.07% in December (the most recent data available).

This is higher than Freddie Mac’s 3.60% average because it factors in low credit and low-down-payment conventional loan closings, which tend to come with higher rates. Additionally, the most recent Ellie Mae report shows rate levels before they started dropping significantly.

Lower credit score borrowers can use conventional loans, but these loans are more suited for those with decent credit and at least 3% down. Five percent down is preferable due to higher rates that come with lower down payments.

Twenty percent of equity is preferred when refinancing.

With adequate equity in the home, a conventional refinance can pay off any loan type. Got an Alt-A, subprime, or high-PMI loan? A conventional refi can take care of it.

For instance, say you purchased a home three years ago with an FHA loan at 3.5% down. Since then, home values have skyrocketed.

You refinance into a conventional loan (because you now have 20% equity) and eliminate FHA mortgage insurance.

This could be a savings of hundreds of dollars per month, even if your interest rate goes up.

Getting rid of mortgage insurance is a big deal. This mortgage calculator with PMI estimates your current mortgage insurance cost. Enter 20% down to see your new payment without PMI.

Compare Rates From Top Rated National Lenders and Save (Jan 26th, 2020)

FHA mortgage rates

FHA is currently the go-to program for home buyers who may not qualify for conventional loans.

The good news is that you will get a similar rate — or even lower one — with an FHA loan than you will with conventional.

Related: Read more about FHA costs and requirements on our FHA loan calculator page.

According to loan software company Ellie Mae, which processes more than 3 million loans per year, FHA loan rates averaged 3.93% in December (the most recent data available), a bit lower than the average conventional rate.

Another interesting stat from Ellie Mae: About 30% of all FHA loans are issued to applicants with scores below 650.

FHA loans come with mortgage insurance. But the overall cost is not much more than for conventional loans.

A little-known program, called the FHA streamline refinance, lets you convert your current FHA loan into a new one at a lower rate if rates are now lower.

An FHA streamline requires no W2s, pay stubs, or tax returns. And you don’t need an appraisal, so home value doesn’t matter.

Learn more about the FHA streamline refinance here.

Shop and Compare Today's Rates and Save (Jan 26th, 2020)

VA mortgage rates

Homeowners with a VA loan currently are eligible for the ever-popular VA streamline refinance.

No income, asset, or appraisal documentation is required.

If you’ve experienced a loss of income or diminished savings, a VA streamline can get you into a lower rate and better financial situation. This is true even when you wouldn’t qualify for a standard refinance.

But don’t overlook the VA loan for home buying. It requires zero down payment. That means if you have the cash for closing costs, or can get them paid for by the seller, you can buy a home without raising any additional funds.

Don’t overlook the VA loan for home buying. It requires zero down payment.

VA mortgages are offered by local and national lenders, not by the government directly.

This public-private partnership offers consumers the best of both worlds: strong government backing and the convenience and speed of a private company.

Most lenders will accept scores down to 620, or even lower. Plus, you don’t pay high interest rates for low scores.

Quite the contrary, VA loans come with the lowest rates of all loan types according to Ellie Mae. In December (the most recent data available), 30-year VA mortgage rates averaged just 3.66% while conventional loans averaged 4.07%, representing a big discount if you’re a veteran.

Check your monthly payment with this VA loan calculator.

There’s incredible value in VA loans.

Show Me Today's Rates (Jan 26th, 2020)

USDA mortgage rates

Like FHA and VA, current USDA loan holders can refinance via a “streamlined” process.

With the USDA streamline refinance, you don’t need a new appraisal. You don’t even have to qualify using your current income. The lender will only make sure that you are still within USDA income limits.

More about the USDA streamline refinance.

Home buyers are also learning the benefits of the USDA loan program for home buying.

No down payment is required, and rates are ultra-low.

Home payments can be even lower than rent payments, as this USDA loan calculator shows.

Qualification is easier because the government wants to spur homeownership in rural areas. Home buyers might qualify even if they’ve been turned down for another loan type in the past.

Compare Rates From Top Rated National Lenders and Save (Jan 26th, 2020)

Mortgage rates today

While a monthly mortgage rate forecast is helpful, it’s important to know that rates change daily.

You might get 3.9% today, and 4.0% tomorrow. Many factors alter the direction of current mortgage rates.

To get a synopsis of what’s happening today, visit our daily rate update. You will find live rates and lock recommendations.

February economic calendar

The next thirty days hold no shortage of market-moving news. In general, news that points to a strengthening economy could mean higher rates, while bad news can make rates drop.

  • Wednesday, January 29: Fed meeting adjourns, rate announcement
  • Monday, February 3: ISM Manufacturing
  • Friday, February 7: Nonfarm Payrolls, wages, unemployment rate
  • Thursday, February 13: Consumer Price Index
  • Friday, February 14: Retail Sales
  • Tuesday, February 18: NAHB Housing
  • Wednesday, February 19: Housing Starts
  • Friday, February 21: Existing Home Sales

Now could be the time to lock in a rate in case these events push up rates this month.

Mortgage rates Q&A

Below are some of the most common questions about mortgage rates.

What are the current mortgage rates today

Mortgage rates fluctuate based on market conditions and your specific situation. For instance, someone with a high credit score will get a lower rate than someone with a low score. To see average rates, go to themortgagereports.com/today or contact a lender over the phone or online here.

Will mortgage interest rates go down in 2020?

According to our survey of major housing authorities such as Fannie Mae, Freddie Mac, and the Mortgage Bankers Association, the 30-year fixed rate mortgage will average around 3.7% through 2020. Rates are even lower than that as of January 2020. See the full forecast from housing authorities here.

Can you negotiate a better mortgage rate?

Yes. Lenders have the flexibility to drop their rates and fees. Often, you must approach a lender with a better offer in writing before they will lower their rate.

Is 3.875% a good mortgage rate?

Historically, it’s a fantastic mortgage rate. The average rate since 1971 is more than 8% for a 30-year fixed mortgage. To see if 3.875% is a good rate right now and for you, get 3-4 mortgage quotes and see what other lenders offer. Rates vary greatly based on the market and your profile (credit score, down payment, and more).

Which mortgage company has the best rates?

Most companies have similar rates. However, some offer ultra-low rates to gain market share. Others have lower rates for FHA than conventional, or vice versa. The only way to know if your company is offering the lowest rate is to get quotes from various lenders.

How much does 1 point lower your interest rate?

A point is a fee equal to 1% of your loan amount, or $1,000 for every $100,000 borrowed. Your rate could drop 0.25%-0.50% or more for each point paid, however, that can vary greatly depending on the lender, loan characteristics, and borrower profile.

How can I avoid paying closing costs?

You can 1) request a lender credit; 2) request a seller credit (if buying a home); 3) increase your mortgage rate to avoid points; 4) get a down payment gift (which can be used for closing costs); 5) get down payment assistance. Find more strategies here.

What are today’s mortgage rates?

Low mortgage rates are still available. You can get a rate quote within minutes with just a few simple steps to start.

Show Me Today's Rates (Jan 26th, 2020)  

Selected sources:

  • https://www.elliemae.com/mortgage-data/origination-insight-reports
  • https://www.bankrate.com/investing/trump-impeachment-what-it-means-for-stock-investors/
  • https://www.federalreserve.gov/monetarypolicy/fomccalendars.htm