Outlook for Mortgages in 2016

Mortgage credit is still tighter today than it was during the lead-up to the housing bust, but it has loosened a little every year since 2009. Whether you're buying or refinancing, it's easier to get a mortgage at rates that are still at historically low levels. The average 30-year fixed rate hovered around 4% in the past year, dipping to 3.76% at the end of October. That makes six years in a row that the 30-year fixed rate has been below 5%, and the pattern won’t change in 2016. Kiplinger expects the 30-year fixed rate to end the year at 4.4%.

The interest-rate premium for conforming jumbos (loans of $417,000 to $625,500) that lenders added during the financial crisis has mostly disappeared. Jumbos (loans of more than $625,500), which lenders typically hold on their own books, occupy a sweet spot, says Guy Cecala, publisher of Inside Mortgage Finance. This past fall, lenders offered jumbo rates as low as 3.6%. They consider jumbos to be relatively low risk because borrowers typically have a high credit score and a large down payment.

Borrowers who want to buy or refinance will find fixed-rate and adjustable-rate loans backed by Fannie Mae and Freddie Mac that require just 5% down. Freddie Mac offers a 3%-down-payment program to home buyers with low to moderate incomes, which can provide a less costly alternative to loans insured by the Federal Housing Administration that require 3.5% down but impose up-front mortgage insurance costs.