Why rising mortgage rates are nothing to worry about

Mortgage rates may be on the rise, but now it’s still a great time to refinance. Here’s what you need to know before starting the refinancing process. (iStock)

At the start of the pandemic, mortgage rates plummeted to historic lows. However, amid the coronavirus vaccine rollout and reopening of businesses, those record low interest rates will rise again.

In fact, most of 2021 has seen a rising mortgage rate trend thus far, leaving many home buyers to wonder if it's still possible to secure a great rate on a home loan. Fortunately, the mortgage market is still in great shape – even for firsttime homebuyers – compared to pre-pandemic times, which means that mortgage refinances are still viable options for saving money on monthly payments.

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Here’s what you need to know about how current mortgage rates within the housing market are expected to change before getting started with the refinancing process. If you're ready to explore your loan options, visit Credible to compare rates and lenders in just a few minutes.

What factors affect mortgage rates?

When discussing the different factors that affect current mortgage rates, there's no more important one than the 10-year Treasury yield rate. Put simply, Treasury bonds are often seen as safe investments because they are backed by the U.S. government. 

As such, they are seen as a gauge for investor sentiment. When demand is high, it's a sign that the economy is in flux and investors are looking for a safe place to invest. When demand goes up, yield rates go down because the government pays less for the bonds that they sell. 

Typically, the Treasury bond rate is tied very closely to mortgage rates and can be used as an indicator for how interest rates are set to change in the future and, by extension, when it's a good time to refinance.

Other economic factors that can affect how the Federal Reserve sets interest rates are the unemployment rate, the rate of inflation and current real estate conditions. All of these factors combined make it easy to see why interest rate increases have been seen as the economy has started to recover.

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If you think that now might be the right time to refinance, use an online mortgage savings calculator to see how much you could stand to save on your mortgage payment.

What will mortgage rates be for the rest of 2021?

Now that you know more about how to forecast mortgage rates, it's time to take a closer look at how they will change in 2021. As the economy continues to recover and stabilize, it's likely they will rise in the short-term. However, on a longer-term horizon, the Federal Reserve has announced that they intend to keep low rates through at least 2023.

"I tell buyers not to panic. An increase in rates shouldn’t dissuade them [from refinancing] right now, says Beatrice De Jong, a Consumer Trends Expert with Opendoor. "Homebuyers have been able to benefit from abnormally low interest rates over the past few years. But, in the late 1990s, seeing interest rates as high as 6% was average and it’s important to remember that people in the 90s still bought homes, and profited from home values increasing."

Still, despite the wise words of many experts, the rise in interest rates has led to a slump in refinance applications. According to the latest weekly survey from The Mortgage Bankers Association (MBA), the refinance index decreased by 1% over the last week and is 18% lower than it was during the same week last year.

When you're ready to refinance your mortgage, visit Credible to compare loan rates and lenders.

What you can do to get a favorable rate

Rising mortgage rates are to be expected as the economy recovers. However, that doesn't mean that you can't get decent refinance rates. In this case, it will be important to focus on personal finance methods of ensuring that you can access a good interest rate.

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Improving a bad credit score and building credit can help you to secure a lower rate, since those with higher credit scores are often given the best rates over those with lower scores. On the other hand, choosing a 15-year mortgage over a 30-year mortgage can also be beneficial as mortgage lenders are often willing to give you a lower rate in exchange for getting paid back sooner.

An online mortgage broker like Credible can help you get personalized pre-approval letters and rates without affecting your credit score.

Have a finance-related question, but don't know who to ask? Email The Credible Money Expert at [email protected] and your question might be answered by Credible in our Money Expert column.

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