Where are interest rates headed in 2021?

This is something that if we knew it would make our lives a whole lot better. However, since we don’t have a crystal ball, we have to go off of trends and projections.

If you read our interest rates primer, you’ll recall that recently, Fed Chair Jerome Powell stated his intention to keep rates low or near zero until 2024, in the range of 0-0.25%. The intent of these record low rates is to stimulate the US economy by encouraging investment – encouraging business investment and borrowing, encouraging entrepreneurship and creating
jobs.

The foregoing is the Fed’s policy intent. Does that also mean business and consumer interest rates will continue to remain low? Does anyone know, with certainty? The simple answers to these questions are probably yes, and absolutely no. It is highly likely that we will continue to enjoy low rates as the Fed nudges us back toward a healthy economy from our COVID-inFLUenced malaise. It is also nearly impossible to predict the exact nature of the rise, and when, precisely, it will occur.

We have already spent several trillion dollars propping up the economy, and we effectively printed money to do so. We were at a budget deficit of $3.1 trillion as of the end of September 2020, and we have another $1.9 trillion in COVID relief awaiting approval. History doesn’t provide much guidance as these circumstances are, to use a recently overused word,
unprecedented. The odds favor these infusions pointing toward higher interest rates, but industry experts are evenly split on the direction rates will go. Expert opinions are remarkably split. Bankrate, among the banking industry’s premier deposit and loan tracking data sources, asked their panel of twelve mortgage experts and economists for their long-term predictions, and they all agreed that rates will increase. Trying to get the group to agree as to when rates will rise is a struggle, so much so, that the group is equally
divided as to the direction rates will trend this week, with four guessing higher, four guessing lower, and four suggesting that rates will remain unchanged. Our best advice: take advantage of low rates while they are available. Shop for the best rate, look at online reviews and/or get referrals from recent clients, and make decisions to work with
those about whom you feel comfortable.

If you haven’t refinanced your mortgage, run the numbers and look for your out-of-pocket break-even point: take the sum of all costs associated with replacing your current loan and divide it by the net monthly savings achieved by getting a lower rate. This will give the number of months required to justify the refinancing. Note that this is not the true breakeven, because the new and old payment amounts will be affected by differing loan amortization schedules, with disparate equity/interest ratios.
Are you interested in more detailed coverage of interest rates? Let us know, and we’ll put together additional posts or videos to address your questions.