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MORTGAGE KNOWLEDGE CENTER

PenFed Mortgage with Confidence

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image

CONVENTIONAL LOANS

Rates starting at % (APR %)¹

 

Apply before becoming a member.

After your application, we’ll help you:

1. Discover you’re eligible to become a PenFed member

2. Open a Savings/Share Account and deposit at least $5

  1. Home
  2. Mortgage Knowledge Center
  3. Can I Count on Rates Lowering In the Next 2 to 3 Years?

MORTGAGE

Can I Count on Rates Lowering In the Next 2 to 3 Years?

What you'll learn: How a refinance or adjustable rate can work for you when rates are uncertain

EXPECTED READ TIME: 4 MINUTES

February 22, 2023

Can I count on rates lowering in the next two to three years? What should I do now?

What do gravity and mortgage rates have in common? What goes up must come down. Unfortunately, there’s no foolproof scientific formula for making mortgage rate predictions for the next five years or more. But it can be helpful to understand the general context of how mortgage rates change so that you can strategize and prepare for whatever comes down the pike.

What is the future of mortgage rates?

Albert Einstein coined the phrase: “If you want to know the future, look at the past.” From 1971 to 2022, the average 30-year fixed mortgage rate was 7.76 percent. In that time, rates have climbed to over 18 percent (in 1981) and dropped below 3 percent (in 2020) – with many variations in between.

What does this history lesson tell us? Mortgage rate fluctuations are normal and relatively unpredictable. While experts certainly try to make interest rate predictions, it’s important to remember a forecast is just that – an estimate. What we do know is that rates are based on many different factors: economic conditions, the housing market, the Federal Reserve’s benchmark rate adjustments (which indirectly affect mortgage rates), and more.

What does that mean for you?

It’s easy to get hung up on questions surrounding rates. Are interest rates rising? Will mortgage rates go down? But remember, interest rates are just one factor in the cost of a mortgage. How much you’ll ultimately pay for a home will come down to many other variables including the purchase price, down payment, loan term, and closing costs.

Even if rates come down in the next few years, it may make sense to buy now if you can afford it. Here are some options that may help you decide.

Option 1: Go for an adjustable rate

An adjustable-rate mortgage (ARM) is divided into two periods. First, it has a fixed rate for a set number of years and then the rate fluctuates based on the market for the remainder of its term. ARMs are popular when rates rise for two key reasons:

  • The introductory rate is typically lower than any fixed-rate mortgage options.
  • Your payments can decrease if rates go down during the variable period.

For example, say you get a 3/1 ARM for $500,000 and an introductory rate of 7 percent. When your introductory period ends in three years, rates have lowered to 5 percent. See how your monthly payment changes:

Year of Mortgage

Years 1–3

Year 4

Interest Rate

7%

5%

Monthly Payment
(Principal and Interest)

$3,327

$2,723

That’s over $600 in savings each month and over $7,000 for the year. Of course, there’s always a risk that rates will go up instead. For that reason, it’s important to know exactly how ARMs work and consult with your lender before you make the call.

Option 2: Buy now, refinance later

Locking in a rate for a 30-year mortgage can sound daunting, especially when the rate is higher than you want. While it’s important to see a mortgage as a long-term commitment, the fact of the matter is that your terms are not set in stone. Refinancing is a tool you can use to change your rate and term (and even get cash back) if the time is right. It’s typically recommended to refinance when you can reduce your rate by a full percentage point – but it sometimes makes sense to do so to save less than a full percentage point.

Let’s say you lock in a 7 percent rate on a 30-year fixed-rate mortgage for $500,000. In two years, rates are down to 6 percent. When you run the numbers, you see that you’ll save almost $400 per month and over $61,000 in interest over the life of the loan.

 

Original Loan

Refinance

Interest Rate

7%

6%

Monthly Payment
(Principal & Interest)

$3,327

$2,935

Total Interest Paid

$628,233

$566,999

Just keep in mind, refinances also include closing costs. You’ll want to be sure to keep the mortgage long enough to make the upfront expense worth it.

Option 3: Ride it out

If buying or refinancing aren’t a high priority for you right now, then the smartest action might be no action. Or rather, play a longer game: Save now for a larger down payment later. Improve your credit score if there’s room for improvement. When the time comes to apply for a mortgage, both actions can help you qualify for a lower rate and potentially save thousands of dollars over the life of the loan.

What should I do?

Truth is, there’s no crystal ball to determine if interest rates will go down. It’s hard to make a decision without knowing the future of mortgage rates. Instead of focusing on external factors, it can help to look inside your own situation to determine if the time is right. If you can afford a mortgage at its current rate – knowing you can still take advantage of future rate reductions – it may be worth moving forward now.

For more information about PenFed Mortgages:
 

PenFed Mortgage: 

800-970-7766

Get Started

SIMILAR ARTICLES

When Rates Rise – Is An Arm Good? | PenFed Credit Union

You can still get a low rate with an adjustable-rate mortgage even when rates rise. An adjustable-rate mortgage can give you buying power you need. Read on.

looking at homes in hot housing market

10 Reasons Why You Should Refinance | PenFed Credit Union

Refinancing has some significant advantages, from lowering your rate to pulling money out for home improvement or consolidating debt. Find out if refinancing is right for you.

house in summer

10 Things You Can Do to Get the Lowest Mortgage Interest Rate | PenFed Credit Union

Find out how to get the lowest interest rates when you buy a home - before, during, and even after the process.

house in fall

Refinancing For Less Than a Full Point Reduction: Does It Ever Make Sense? | PenFed Credit Union

Can you come out ahead by refinancing for less than a full interest point? Let's explore that advice and when you can ignore it.

house in winter
image

CONVENTIONAL LOANS

Rates starting at % (APR %)¹

 

Apply before becoming a member.

After your application, we’ll help you:

1. Discover you’re eligible to become a PenFed member

2. Open a Savings/Share Account and deposit at least $5

Home Buying Steps

  • Getting Started
  • Finding a Home
  • Getting a Mortgage
  • Home Ownership

Mortgage Topics

  • VA Loans
  • Conventional Loans
  • First Time Homebuyer
  • Home Equity
  • Homebuying 101
  • Checklists
  • Adjustable Rate Mortgages
  • PenFed Top 10
  • Refinance
  • Jumbo Loans
  • FHA
  • Videos

Mortgage Products

  • Mortgage Center
  • Refinancing
  • Home Equity

PenFed HELOC

Rates as Low as % APR* with flexible use of funds

Apply before becoming a member.

After your application, we’ll help you:

1. Discover you’re eligible to become a PenFed member

2. Open a Savings/Share Account and deposit at least $5

Disclosures

1Except for holidays, rates are updated Monday through Friday at 10:15am EST. The advertised rates and points are subject to change. The information provided is based on discount point, which equals percent of the loan amount, and assumes the purpose of the loan is to purchase a property with a 30-year, conforming, fixed-rate loan. Loan amount of $400,000; loan-to-value ratio of 75%; credit score of 760; and DTI of 18% or less. The property is an existing single-family home and will be used as a primary residence. The advertised rates are based on certain assumptions and loan scenarios, and the rate you may receive will depend on your individual circumstances, including your credit history, loan amount, down payment, and our internal credit criteria. Other rates, points, and terms may be available. All loans are subject to credit and property approval.

*Prime Rate is % as of . The APR for this Home Equity Line of Credit (HELOC) is based on prime plus a margin and can change monthly. Fixed Rate Advances will be amortized over the Fixed Rate Advance Term, with the payment consisting of principal and interest. Your Annual Percentage Rate for a Fixed Rate Advance will be calculated by adding your Prime Rate, your Margin, and the Additional Fixed Rate Lock-In Margin. Your Annual Percentage Rate for a Fixed Rate Advance shall not exceed 18% and shall be equal to or greater than % for primary residences and second homes.

  • Annual Fee: Notwithstanding the foregoing, an annual fee of $99 will be assessed on each account anniversary.
  • Home equity lines of credit (HELOC) are variable rate loans and the interest rate is subject to increase after consummation of the loan on monthly basis. Closing costs range between $500 and $8,500 for credit lines of $500,000. Contact a representative for additional details.

Appraisals: PenFed will attempt to establish value via an independent method. If that method is unsuccessful, or the value is not sufficient for the amount requested, an appraisal will be required regardless of CLTV. An appraisal is always required in the following circumstances:

For all loans with a loan amount greater than $400,000.

If an appraisal is required, it must be ordered by PenFed. You will be contacted for authorization and payment prior to ordering. Appraisal fees average $550 to $850 (some run higher).

  • Closing Cost Credit: PenFed will pay most closing costs associated with a home equity line of credit (HELOC), which includes credit report, flood certification, settlement/closing, property ownership and encumbrances search, recording, property search, and quick close. Member is responsible for any city, county, and/or state taxes if the subject property is located in FL, LA, MD, MN, NY, TN, or VA. If an appraisal is required, the member, who is responsible for the fee whether or not the loan closes, will pay the cost.

Interest may be tax deductible, consult a tax advisor for further information regarding the tax deductibility of interest and charges.

Fixed Rate Advance Lock-In You may lock in an Annual Percentage Rate for Advances during the Draw Period. During your Draw Period, you may choose to have three separate Fixed Rate Advances locked in at any one time, with a maximum of two new Fixed Rate Advances per calendar year. Each Fixed Rate Advance must equal or exceed Ten Thousand Dollars ($10,000.00) and you may not request a Fixed Rate Advance that would cause the amount you owe to exceed your Credit Limit. The only term option for your Fixed Rate Advance is 240 months (“Fixed Rate Advance Term”). However, the term of your Fixed Rate Advance cannot exceed your Repayment Period.

Fixed Rate Advances will be amortized over the Fixed Rate Advance Term with the payment consisting of principal and interest. Your Annual Percentage Rate for a Fixed Rate Advance will be calculated by adding your Prime Rate, your Margin and the Additional Fixed Rate Lock-In Margin. Your Annual Percentage Rate for a Fixed Rate Advance shall not exceed 18% and shall be equal to or greater than % for primary residences and second homes and 4.75% for investment properties.

Property Insurance: Property insurance is required.

Multiple PenFed Loans: Multiple PenFed Equity loans and HELOCs are available as long as the member and collateral qualify (except Texas). For Equity loans and HELOCs the total indebtedness cannot exceed $500,000 for all PenFed Equity and HELOCs combined.

PenFed does not lend on:

  • Mobile homes
  • Co-ops or time-shares
  • Properties that are currently listed on the market for sale
  • Commercial property or property used for commercial purposes, even if a residence is part of the property
  • Undeveloped property (land only)
  • Properties with more than 4 units

Properties that are currently under major construction/renovations: Property must be fully livable, with no safety issues. (Examples: no missing rails from stairs/decks, no open walls with wires showing, missing kitchen appliances/counters, missing bath fixtures or unfinished pool).

  • Additional limitations may apply

Home Equity Line of Credit:

  • This Account has a Draw Period of 10 years, followed by a repayment period of 20 years.
  • If only minimum payments are made during the draw period, the loan balance will not decrease.
  • In Texas, the maximum CLTV available is 80% on owner occupied properties. Additional restrictions apply in Texas, so please ask a representative for details.
  • In all other states, the maximum CLTV is 85% on owner occupied properties and second homes. Additional restrictions or requirements may apply based on application characteristics.
  • Property type of Condo has a maximum CLTV of 80%.
  • The maximum CLTV available is dependent on credit qualification.
  • Rates vary depending on owner occupancy and CLTV and other loan criteria.

Minimum Loan Amount Requirements in all States:

  • For an owner occupied property or second home the minimum loan amount is $25,000 and the maximum amount is $500,000 with a CLTV of 85% or less of the fair market value.

Other terms and conditions apply; call 844-918-4307 to speak with a representative for details. All rates and offers are subject to change without notice. To receive advertised product, you must become a member of PenFed.

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This credit union is federally insured by the National Credit Union Administration. Rates are current as of December 2023 unless otherwise noted and are subject to change.

APY = Annual Percentage Yield
APR = Annual Percentage Rate


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Routing #256078446

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IMPORTANT NOTICE

You are leaving PenFed.org and entering a third party Website that is not a part of Pentagon Federal Credit Union.


The content you are about to view is produced by a third party unaffiliated to Pentagon Federal Credit Union. PenFed takes no responsibility for the content of the page.


IMPORTANT NOTICE

You are leaving PenFed.org and entering a third party site. PenFed Realty, LLC is wholly owned by PenFed and this referral may provide PenFed a financial or other benefit.


For more information about the relationship between PenFed and PenFed Realty, LLC, see the Affiliate Business Arrangement Disclosure.


IMPORTANT NOTICE

You are leaving PenFed.org and entering a third party Website.


The content you are about to view is produced by a third party website that is unaffiliated to Pentagon Federal Credit Union. PenFed takes no responsibility for the content of the page.


IMPORTANT NOTICE

You are leaving PenFed.org and entering a third party site. PenFed Title, LLC is wholly owned by PenFed and this referral may provide PenFed a financial or other benefit.


For more information about the relationship between PenFed and PenFed Title, LLC, see the Affiliate Business Arrangement Disclosure.


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