Several major mortgage rates have increased over the past seven days. Average interest rates on both 15-year and 30-year fixed mortgages rose. 5/1 adjustable rate mortgages for variable rates have also increased.
Mortgage rates, which were historically low throughout much of 2020 and 2021, have risen steadily since 2022, when the Federal Reserve began aggressively raising interest rates to combat inflation. Mortgage interest rates are not determined by the central bank. However, it is affected by the Fed’s interest rate increases.
With mortgage rates already reaching 8% this year, the highest level since 2000, the question arises of what the rest of the year holds for potential homebuyers. The housing market affordability crisis has caused mortgage applications to fall to their lowest level in decades.
Progress in inflation and other key economic indicators has the potential to alleviate some of the upward pressure on mortgage interest rates. But if future inflation data comes in warmer than expected and the Fed chooses to raise interest rates further, mortgage rates could continue to rise in 2023.
There will always be fluctuations in the mortgage and housing markets. That’s why experts say it’s a good idea for home buyers to focus on what they can control: getting the best rate for their finances.
To increase your odds of qualifying for the lowest rate available, take steps to improve your credit score and save for a down payment. Also be sure to look at the annual percentage rate, or APR, which reflects the mortgage interest rate plus other borrowing costs. You can make a more accurate apples-to-apples comparison by looking at the total cost of borrowing money from multiple lenders.
30 year fixed rate mortgage
The 30-year fixed mortgage interest rate average is 8.01%, representing a 12 basis point increase from a week ago. (One basis point is equivalent to 0.01%.) Thirty-year fixed mortgages are the most common loan term. A 30-year fixed-rate mortgage will generally have a higher interest rate than a 15-year fixed-rate mortgage, but will also have a lower monthly payment. Although you’ll pay more interest over time (you’re paying off your loan over a longer period of time), a 30-year fixed mortgage may be a good option if you’re looking for a lower monthly payment.
15 year fixed rate mortgage
The average rate on a 15-year fixed mortgage is 7.17%, representing a 12 basis point increase from a week ago. Even if the interest rate and loan amount are the same, you will definitely have a larger monthly payment with a 15-year fixed mortgage compared to a 30-year fixed mortgage. But if you can afford the monthly payments, a 15-year loan will usually be a better deal. These often include being able to get a lower interest rate, paying off your mortgage sooner, and paying less total interest in the long run.
5/1 adjustable rate mortgages
The 5/1 adjustable rate mortgage rate averaged 6.94%, an increase of 8 basis points compared to the same period last week. You’ll typically get a lower interest rate with a 5/1 adjustable rate mortgage (compared to a 30-year fixed mortgage) for the first five years of the mortgage. However, because the rate is adjusted to the market rate, you may have to pay more at the end of that period, as stated in the terms of your loan. So, if you plan to sell or refinance your home before the rate changes, an ARM may be a good option. Otherwise, changes in the market can significantly increase your interest rate.
Mortgage rate trends
In March 2022, the Federal Reserve began increasing the federal funds rate to increase the cost of borrowing and slow the economy. The central bank, which increased interest rates 11 times, chose not to increase interest rates again at its meeting in September in order to monitor how inflation and the economy would react. Although the Fed decided to keep interest rates at the same level for a while, it kept the door open to further interest rate increases this year.
“Today’s high mortgage rates are not the only challenge we face in the current market,” said Erin Sykes, chief economist at Nest Seekers International. “The combination of high interest rates plus persistent property prices and persistent inflation is making daily life more expensive.”
Mortgage interest rates are unlikely to return to the lowest levels early in the pandemic, but mortgage interest rates are unlikely to fall before the end of the year, experts say.
But for that to happen, Sykes says we need to see inflation retreat consistently over at least four to six measurements. Keeping federal funds rates stable could also help stabilize mortgage rates in 2024.
Fannie Mae is calling for the average 30-year fixed mortgage rate to end the year at 7.3%.
We use data collected by Bankrate to track daily mortgage rate trends. This table summarizes the average rates offered by lenders across the US:
Average mortgage interest rates
|30 year fixed||8.01%||7.89%||+0.12|
|15 year fixed||7.17%||7.05%||+0.12|
|Huge 30 year mortgage rate||8.01%||7.92%||+0.09|
|30-year mortgage refinance rate||8.09%||8.05%||+0.04|
Prices as of October 23, 2023.
How to find the best mortgage rates?
Contact your local mortgage broker or use an online mortgage service to find a personalized mortgage rate. To find the best home mortgage, you need to consider your goals and your overall financial situation.
A number of factors will affect your mortgage’s interest rate, including your down payment, credit score, loan-to-value ratio, and debt-to-income ratio. Having a higher credit score, a higher down payment, a low DTI, a low LTV, or any combination of these factors can help you get a lower interest rate.
Besides the interest rate, additional costs such as closing costs, fees, discount points and taxes can also affect the cost of your home. Be sure to compare shop with multiple lenders, such as local and national banks as well as credit unions and online lenders, to get a mortgage loan that’s right for you.
What is the best loan term?
It is important to consider the loan term or payment schedule when choosing a mortgage. The most commonly offered loan terms are 15 years and 30 years, but you can also find 10, 20 and 40 year mortgages. Another important distinction is between fixed-rate and adjustable-rate mortgages. For fixed-rate mortgages, interest rates are fixed for the life of the loan. For adjustable-rate mortgages, interest rates remain constant for a specified period of time (most often five, seven or 10 years), then the rate changes annually based on the market rate.
When choosing between a fixed-rate and adjustable-rate mortgage, you should consider the length of time you plan to stay in your home. Fixed-rate mortgages may be more suitable for those who plan to live in the home for a long time. Adjustable-rate mortgages may offer lower initial interest rates, while fixed-rate mortgages are more stable over the long term. If you don’t plan on keeping your new home for more than three to 10 years, an adjustable-rate mortgage may get you a better deal.