Benchmark Rate to Average 4.4 Percent, Says MBA

Editor’s note: This is an outdated article. For the most recent mortgage forecasts available, please see this page.

On Tuesday, the Mortgage Bankers Association (MBA) released its forecast for 2011 home-loan rates and other housing trends. They feel the benchmark 30-year fixed mortgage rate will average 4.4 percent for the remainder of 2010. For 2011, the MBA predicts that the benchmark rate will slowly but steadily increase to around 5.1 percent.

Various factors are driving our rate forecast,” said Jay Brinkmann, MBA’s Chief Economist and SVP for Research and Economics. “Absent some blockbuster post-election announcement from the [Federal Reserve] on November 3rd, we do not expect to see a further decline in rates.”

The MBA also expects to see a modest rise in home sales in 2011, along with a corresponding rise in home purchase loans.

If their rate predictions come true, it means that mortgage financing will be more affordable this year than next. But how much more affordable? Let’s look at some pricing scenarios to see how the percentages play out when applied to an actual loan amount.

Mortgage Pricing Scenarios

At the time of publication, the average rate for a 30-year fixed mortgage was 4.23 percent (up from 4.19 percent two weeks ago). The MBA is forecasting that rates will rise to 5.1 percent by the end of 2011. At first glance, these numbers don’t mean much. Sure, 4.4 percent is lower than 5.1 percent. But how does that translate into actual dollars? Here’s an example of how much money a home buyer could save by getting the lower of these two rates.

  • A 30-year fixed-rate mortgage in the amount of $250,000 at 4.4 percent interest will have a monthly payment of $1,251 (excluding insurance and taxes). Total interest paid over the full term of the loan = $200,684.
  • A 30-year mortgage for the same amount with a rate of 5.1 percent will have a monthly payment of $1,357 (excluding insurance and taxes). Total interest paid over the full term of the loan = $238,654.

In the second scenario, I would pay an additional $106 a month toward my mortgage payment. The higher interest rate would account for this increase. But look at the total amount of interest paid over the life of the loan. That’s where the true difference becomes apparent. In the second scenario, I would pay an additional $38,000 worth of interest. I could put my kid through college for that amount of money.

What does all of this mean? It means that if the MBA’s predictions are accurate, mortgage loans are going to be more expensive in 2011. It means that you could save money by buying (or refinancing) a home sooner, rather than later.

We are tracking these and other housing market predictions for your convenience.

Disclaimer:We make no assertions or guarantees about the forward-looking statements made by the MBA. We have provided this information for educational purposes only. There are many variables that could render their predictions inaccurate. No one can predict the mortgage market with 100% accuracy. Additionally, the rate you receive on a home loan will vary from the average rate, based on your credentials as a borrower (credit score, down payment, debt level, etc.).