Some major mortgage rates have climbed over the past seven days. Average 15-year fixed mortgage rates declined slightly, but we saw an upward trend in average 30-year fixed mortgage rates and the average 5/1 adjustable rate mortgage rate.
After nearly a year of rising mortgage rates, borrowers finally saw some relief late last year. Rates have declined since peaking at the end of 2022, although current rates remain nearly double what they were during the record high rate environment of the pandemic.
Inflation and the series of rate hikes put in place by the Federal Reserve in 2022 in an attempt to curb it have partly contributed to the rise in mortgage rates. Mortgage rates hit a 20-year high at the end of 2022, but now the macroeconomic environment is changing again.
Headline inflation remains high but has been slowly but steadily falling every month since peaking in June 2022. The Fed’s decision to raise the federal funds rate by 0.25% on February 1 after its last meeting – the smallest increase since March 2022 – suggests that the inflation may slow and the central bank may be able to ease its rate hikes.
What does this mean for buyers this year? Mortgage rates are expected to decline slightly in 2023, although they are very unlikely to return to the lows of 2020 and 2021. However, rate volatility could continue for some time. “Expect mortgage rates to rise and fall in the first half of the year, at least until there is a consensus on when the Fed will conclude the interest rate hike. “, says Greg McBride, CFA and chief financial analyst at Bankrate. (Like CNET Money, Bankrate is owned by Red Ventures.) McBride expects rates to fall more steadily as the year progresses. “Thirty-year fixed mortgage rates will end the year near 5.25%,” he predicts.
Rather than worrying about market mortgage rates, homebuyers should focus on what they can control: getting the best rate possible for their situation. Take steps to improve your credit score and save for a down payment to increase your chances of qualifying for the lowest rate available. Also, be sure to compare rates and fees from multiple lenders to get the best deal. Looking at the annual percentage rate, or APR, will show you the total cost of borrowing and help you compare apples to apples.
30 Year Fixed Rate Mortgages
The average 30-year fixed mortgage interest rate is 7.08%, up 7 basis points from a week ago. (One basis point equals 0.01%.) Thirty-year fixed mortgages are the most commonly used loan term. A 30-year fixed rate mortgage will generally have a higher interest rate than a 15-year fixed rate mortgage, but also a lower monthly payment. Although you’ll pay more interest over time – you’re paying off your loan over a longer period – if you’re looking for a lower monthly payment, a 30-year fixed mortgage may be a good option.
15-year fixed rate mortgages
The average rate for a 15-year fixed mortgage is 6.28%, down 3 basis points from a week ago. Compared to a 30-year fixed mortgage, a 15-year fixed mortgage with the same loan value and interest rate will have a higher monthly payment. However, if you can afford the monthly payments, a 15-year loan has several advantages. You will most likely get a lower interest rate and pay less interest in total because you are paying off your mortgage much faster.
5/1 Adjustable Rate Mortgages
A 5/1 adjustable rate mortgage has an average rate of 5.86%, up 11 basis points from a week ago. For the first five years, you’ll typically get a lower interest rate with a 5/1 variable rate mortgage compared to a 30-year fixed mortgage. But changes in the market could cause your interest rate to increase after this period, as stated in the terms of your loan. If you plan to sell or refinance your home before the rate changes, an adjustable rate mortgage might be right for you. If not, market fluctuations could significantly increase your interest rate.
Mortgage Rate Trends
Mortgage rates have been historically low for most of 2020 and 2021, but have risen steadily throughout 2022. The Federal Reserve has raised the target federal funds rate – which influences the cost of most consumer loans , including mortgages – seven times in 2022 in an attempt to rein in record inflation. Although the Fed does not directly control mortgage rates, higher inflation and a higher federal funds rate tend to cause mortgage rates to rise.
The Fed’s latest 0.25% increase — down from its previous six increases of 0.75% or 0.5% — represents a shift in Fed stance and suggests the central bank could be less aggressive in its moves. rate hikes in 2023 if inflation continues to come low. But inflation is still far from the Fed’s 2% target range and Fed officials have repeatedly stated (PDF) that additional – albeit smaller – rate hikes will be needed. All told, while we may see mortgage rates gradually coming down this year, borrowers shouldn’t expect a big drop or a return to pandemic lows.
We use information collected by Bankrate, which is owned by the same parent company as CNET, to track rate changes over time. This table summarizes the average rates offered by lenders in the United States:
Today’s Mortgage Interest Rates
Rates as of March 7, 2023.
How to Shop for the Best Mortgage Rate
You can get a personalized mortgage rate by contacting your local mortgage broker or using an online calculator. In order to find the best home loan, you will need to consider your current goals and finances.
A range of factors, including your down payment, credit score, loan-to-value ratio, and debt-to-income ratio, will all affect your mortgage rate. Having a higher credit score, higher down payment, low DTI, low LTV, or any combination of these factors can help you get a lower interest rate.
The interest rate isn’t the only factor that affects the cost of your home. Also, be sure to consider other costs such as fees, closing costs, taxes, and discount points. Be sure to shop around with multiple lenders — like credit unions and online lenders in addition to local and national banks — to get a mortgage that’s right for you.
How does the loan term affect my mortgage?
One important thing to keep in mind when choosing a mortgage is the term of the loan or the payment schedule. The most commonly offered loan terms are 15 and 30 years, although you can also find 10, 20 and 40 year mortgages. Mortgages are further divided into fixed rate and variable rate mortgages. Interest rates on a fixed rate mortgage are fixed for the term of the loan. Unlike a fixed rate mortgage, an adjustable rate mortgage’s interest rates are only fixed for a certain period of time (most often five, seven or 10 years). After that, the rate fluctuates annually based on the market rate.
When choosing between a fixed rate and an adjustable rate mortgage, you need to think about how long you plan to stay in your home. If you plan to live long term in a new home, fixed rate mortgages may be the best option. While variable rate mortgages may offer lower interest rates initially, fixed rate mortgages are more stable over time. However, you may get a better deal with an adjustable rate mortgage if you only plan to keep your home for a few years. There is no best loan term as a general rule; it all depends on your goals and your current financial situation. Be sure to do your research and think about your own priorities when choosing a mortgage.