Ahead of the Fed meeting in May, average mortgage rates have moved in opposite directions over the past seven days. While rates on 15-year fixed mortgages have declined very slightly, interest rates on 30-year fixed mortgages have seen a modest increase. At the same time, average rates for 5/1 adjustable rate mortgages have remained flat.
The Federal Reserve will hold its May meeting this week to determine whether any further rate hikes will be necessary to tame inflation. If it continues to increase, it will probably be the last in this rate hike cycle and it will only be a quarter of a percentage point. After that, the central bank will keep rates the same for an extended period of time to bring inflation down to the 2% target. But given that inflation is dropping steadily every month, there is a chance it will stop as soon as this week.
This could have an impact on mortgage rates, but it’s hard to say how much the market has actually changed.
“We’ve been in one of the most volatile markets in terms of interest rates since 2008,” says Jennifer Beston, senior vice president at Guaranteed Rate, a national mortgage lender.
Home loans hit a 20-year high in late 2022, but the macroeconomic environment is now changing again. Prices fell significantly in January before rising again in February.
While rates do not directly track changes in the federal funds rate, they do respond to inflation. Overall, inflation remains high but has been declining slowly but consistently each month since it peaked in June 2022.
After raising interest rates significantly in 2022, the Fed opted for smaller rate hikes of 25 basis points at its first two meetings of 2023. The decision to hike 0.25% on March 22 indicates that inflation is calming down and the central bank may be able to . To mitigate – but not stop – price hikes.
While mortgage rates have eased slightly from their December 2022 peak, they are still significantly lower. Few buyers are willing to jump into the housing market, depressing demand and causing housing prices to drop, but that’s only part of the home affordability equation.
“Although home prices have fallen in many parts of the country since the beginning of the year, high rates make buying too expensive for many,” says Jacob Channel, chief economist at LendingTree Loan Market. It is still difficult for many buyers, especially those looking for their first home, to afford a monthly payment.
What does this mean for homebuyers this year? Mortgage rates are likely to decline slightly in 2023, although they are unlikely to return to rock bottom levels for 2020 and 2021. However, rate volatility could continue for some time. “Expect mortgage rates to go up and down in the first half of the year, at least until there is consensus about when the Fed will finish raising rates,” says Greg McBride, CFA and Chief Financial Analyst at Bankrate. (Like CNET Money, Bankrate is owned by Red Ventures.) McBride expects rates to drop steadily as the year progresses. He predicts that “thirty-year fixed mortgage rates will end the year near 5.25%.”
Instead of worrying about market mortgage rates, homebuyers should focus on what they can control: getting the best possible rate for their situation.
“Instead of getting into the nitty-gritty of what the market does every six seconds, buyers need to focus on what they’re really trying to achieve and have a good game plan,” says Beston.
Take steps to improve your credit score and save for a down payment to increase your odds of qualifying for the lowest available rate. Also be sure to compare rates and fees from several lenders to get the best deal. Looking at the Annual Percentage Percentage, or APR, will show you the total cost of borrowing and help you compare apples to apples.
30-year fixed-income mortgages
The average 30-year fixed rate mortgage rate is 6.88%, which is an increase of 3 basis points as of seven days ago. (Basic point equals 0.01%.) The most commonly used loan term is the 30-year fixed mortgage. A 30-year fixed-rate mortgage will usually have a lower monthly payment than a 15-year one — but the interest rate will usually be higher. Although you’ll pay more interest over time — you’re paying off your loan over a longer period of time — if you’re looking for a lower monthly payment, a 30-year fixed-term mortgage might be a good option.
15 years of fixed-income mortgages
The average rate for a 15-year fixed mortgage is 6.26%, which is down 1 basis point from last week. Compared to a 30-year fixed-rate mortgage, a 15-year fixed-rate mortgage with the same loan amount and interest rate will have a larger monthly payment. But a 15-year loan will usually be the better deal, if you can afford the monthly payments. This usually includes being able to get a lower interest rate, paying off your mortgage sooner, and paying lower total interest in the long run.
5/1 adjustable rate mortgages
The average 5/1 ARM rate is 5.80%, the same rate as seven days ago. You’ll typically get a lower interest rate (compared to a 30-year fixed mortgage) with a 5/1 adjustable rate mortgage for the first five years of the mortgage. But since the rate changes with the market rate, you may end up paying more after that time, as indicated in the terms of your loan. If you plan to sell or refinance your home before the price changes, it may make sense to use an ARM. But if not, you could be on the hook for a significantly higher interest rate if market rates change.
Mortgage rate trends
Mortgage rates were historically low throughout most of 2020 and 2021 but have risen steadily throughout 2022. Now, mortgage rates are nearly twice as high as they were a year ago, driven by persistently high inflation. This high inflation prompted the Federal Reserve to raise its target federal interest rate seven times in 2022. By raising interest rates, the Fed makes it more expensive to borrow money and more attractive to keep money in savings, which suppresses demand for goods and services.
Mortgage interest rates don’t move in step with the Fed’s actions in the same way that they do, for example, home equity line of credit rates. But they do respond to inflation. As a result, quiet inflation data and positive signals from the Fed will influence mortgage price action more than the latest 25 basis point hike.
We use the rates collected by Bankrate to track price changes over time. This table summarizes the average rates offered by lenders across the country:
Average mortgage interest rates
| project | an average | last week | changes |
|---|---|---|---|
| 30 years fixed | 6.88% | 6.85% | +0.03 |
| 15 years fixed | 6.26% | 6.27% | -0.01 |
| Jumbo 30 year mortgage rate | 6.96% | 6.87% | +0.09 |
| 30 year mortgage refinance rate | 6.99% | 7.00% | -0.01 |
Prices as of May 2, 2023.
How to find personal mortgage rates
To find a personal mortgage rate, talk to your local mortgage broker or use an online mortgage service. When looking at mortgage rates, consider your goals and current financial situation.
Specific mortgage interest rates vary based on factors including credit score, down payment, debt-to-income ratio, and loan-to-value ratio. In general, you want a higher credit score, higher down payment, lower DTI, and lower LTV to get a lower interest rate.
The interest rate is not 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 several lenders — such as credit unions and online lenders as well as local and national banks — in order to get a mortgage that works best for you.
What is the best loan term?
When choosing a mortgage, you should take into consideration the loan term or repayment schedule. The most common mortgage terms are 15 years and 30 years, although there are 10, 20 and 40 year mortgages as well. Mortgages are also divided into fixed rate mortgages and adjustable rate mortgages. For fixed rate mortgages, interest rates are set for the life of the loan. For adjustable-rate mortgages, interest rates are the same for a certain number of years (usually five, seven, or 10), and then the rate is adjusted annually based on the market interest rate.
When choosing between a fixed rate and an adjustable rate mortgage, you need to take into consideration how long you plan to live in your home. Fixed rate mortgages may be a better fit for those who plan to stay home for a while. While adjustable rate mortgages may offer lower interest rates up front, fixed rate mortgages are more stable over the long term. However, you can 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. Make sure you do your research and understand your priorities when choosing a mortgage.