When it comes to mortgage rates no one knows what the future will bring. There is no better example than 2019. Many economists forecast mortgage rates of 5.5% and even more. What really happened was that rates went down. According to Freddie Mac, for the first 11 months of 2019 mortgage rates averaged 3.95% and just 3.7% in November.

This matters to you whether you’re a buyer, seller or someone who wants to refinance old debt.

  • Low mortgage rates make real estate more affordable for buyers.
  • There can be more competition for homes with greater affordability. More competition means higher prices for sellers. As of November, the National Association of Realtors reported that existing home sales were up 2.7% for the past 12 months but home prices increased 5.4%.
  • Lower rates make refinancing more attractive, good news for owners who want to replace existing loans with better financing.

Mortgage Rate Forecasts

Where are we headed in 2020?

This time around forecasters are suggesting that 2020 mortgage rates will be somewhere in the upper 3% range.

  • The National Association predicts that mortgage rates will hover around 3.8% in 2020.
  • Fannie Mae estimates that mortgage rates will be at 3.6% for much of the year but fall to 3.5% by the fourth quarter of 2020.
  • In December the Mortgage Bankers Association said 2020 rates will average 3.7% for the year.
  • Mortgage columnist Jeff Lazerson, writing in the Orange County Register, forecasts 2.875% financing in 2020.

In looking at these numbers we need some context. Are current mortgage rates high or low? Between April 1971 and December 2018 the average weekly mortgage rate was 8.08% according to Freddie Mac. His means that today’s rates are less than HALF the typical rate seen during the past five decades. If 2020 forecasts hold true it should be a very good year for real estate.

Here’s the really important news. Not everyone pays the average mortgage rate. Some pay less and some pay more. You can be among the group with lower mortgage costs by arranging your finances in the way which most pleases lenders.

Three Ways to Engineer Mortgage Rate Affordability

When it comes to affordability there’s a great curiosity. Two households with the same income may have very different levels of affordability.

This happens because affordability is something that can be engineered. By shaping your financial profile you can borrow more, benefit from lower interest rates, and sail through loan applications more easily.

Here are the three most important steps to take.

1. Make a budget.

I know. Dull and boring. But you have to know how much you’re taking in, where it goes, and where cuts can be made to improve your finances. Money you don’t spend can go into savings or used to pay down debts.

The lack of a budget is a widespread and serious problem.

“Relatively small, unexpected expenses, such as a car repair or replacing a broken appliance, can be a hardship for many families without adequate savings,” said the Federal Reserve. “When faced with a hypothetical expense of $400, 61 percent of adults in 2018 say they would cover it, using cash, savings, or a credit card paid off at the next statement.”

The Fed adds that “among the remaining 4 in 10 adults who would have more difficulty covering such an expense, the most common approaches include carrying a balance on credit cards and borrowing from friends or family. Twelve percent of adults would be unable to pay the expense by any means.”

So, as a start, set aside $10 a week for an emergency fund – that will give you $400 in 10 months.

2. Pay all bills in full and on time.

Lenders like to see sky-high credit scores. So should you. Here’s why.

According to credit-score pioneer FICO, if you had a credit score above 760 in late December you likely could get mortgage financing at 3.456%. Someone with a score between 660 and 679 would pay 4.069%. Borrow $200,000 and with the higher score you will pay $893.18 a month for principal and interest. A borrower with the lower score will pay $962.80. That’s a difference of $69.62 per month or $835 a year – twice the $400 a lot of people don’t have.

3. Check credit reports for accuracy.

Credit scores are based on the information contained in your credit report. Sometimes credit report information is wrong and when it is it can drag down credit scores. According to a 2013 report from 60 Minutes errors are common, credit reports for as many as 40 million consumers contain mistakes that reduce scores by at least 25 points.

Check for factual errors and items that are out-of-date. This can be done for free at AnnualCreditReport.com. Under federal rules you can get one free credit report at this site every 12 months from each of the three big credit reporting agencies – Experian, TransUnion, and Equifax.

When it comes to great finances the key is not to be passive. Be a financial engineer and take the steps needed to improve your financial standing. Done right, interest costs will go down, affordability will go up, and borrowing for a home or car will be far easier.