LOS ANGELES — About 20 million Americans are receiving some
sort of unemployment compensation, and 42% of households are bringing in less
income now than they were before the pandemic, according to the personal
finance website Bankrate.com.
But there is some good news for 2021: Interest rates are
expected to remain low and relatively stable throughout the year.
Mortgage rates, in particular, are a bright spot. After
“falling off the table in 2020, they just continued to set new lows as 2020
came to a close,” said Greg McBride, chief financial analyst for Bankrate.com.
Rates tumbled from 3.85% to 2.95% for a 30-year mortgage
over the course of 2020 and from 2.95% to 2.37% for a 15-year loan.
"I expect mortgage rates will trend a little lower
early in 2021 due to some concerns about weakness in the economy. In the back
half of the year, if we see a robust economic recovery, that will push mortgage
rates up, but those increases will be tempered," said McBride, adding that
he expects the 30-year mortgage rate to be a little over 3% by year’s end.
Those mortgage savings “have a stimulative effect on the
economy,” McBride noted. Households that refinance can save hundreds per month
and can use that money to pay down debt or boost savings that are likely to be
unleashed as pent-up demand when widespread vaccinations become a reality by
the middle of the year.
Home equity lines of credit, or HELOC, rates are expected to
act oppositely. They’ll be lower by the end of the year as the economy
improves, mortgage rates increase, and refinancing drops off. That is when many
lenders will shift their focus to home-equity products.
“In the latter part of the year, you’ll see heightened
competition, which, in a low-rate environment, definitely benefits consumers,”
said McBride, adding that he expects the average HELOC to come in at 4.61% and
average home equity loan to be 5.05% by the end of the year.
Auto loan rates, which declined from 4.6% to 4.22% for a
60-month loan throughout 2020, will continue to decrease this year.
“We’ll see rates for both new and used car loans trending
lower throughout the year, but at a snail’s pace,” said McBride, who also
expects rates to average around 4.08% for new-car loans and 4.75% for used-car
While there are many upsides to low interest rates, yields
on savings aren’t one of them. Returns for savings accounts will be flat or
slightly down from last year, which was already at a measly .07% yield as 2020
came to a close.
Credit card rates, however, are expected to increase,
especially for individuals with credit scores of 650 or lower. “What we’re
seeing is a fork in the road with credit card issuers squeamish about risk but
competing tooth-and-nail for consumers that have low probability of default,
high credit card quality, and are volume spenders,” McBride said. “Your
experience is going to depend where you fall on the credit spectrum.”
Individuals with good credit will see even more low-rate
balance transfer offers and tantalizing reward cards. But those with weaker
credit are going to see higher rates and pretty stingy credit lines. McBride
expects credit card rates to average 16.15% at year end.
What’s happening with credit card rates is a mirror of the
K-shaped economic recovery, “where one leg is like an escalator up, and the
other leg is like an escalator going down,” McBride said. “2021 is going to be
the best of times and the worst of times, depending on which leg of that 'K'
For someone with good credit who is still working, managed
to pay down debt, and boost savings in 2020, things look really promising in
2021 because interest rates are low for borrowing. But for those who are out of
work and don't know when they'll be called back or even if they'll be able to
find another job, 2021 will continue to be a year of hardship.
"As opposite as those perspectives are, that’s the
reality for 2021," said McBride.
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