While rates are still up from a year ago, some important mortgage rates fell over the past week. Average interest rates have decreased for both 15-year fixed mortgages and 30-year fixed mortgages. We’ve also seen a rise in average 5/1 adjustable rate mortgages.
In the wake of slowing inflation, the Federal Reserve announced on May 3 a 25 basis point increase in its benchmark short-term interest rate. The May meeting of the Federal Reserve marks what could be the last hike we see for the time being. The central bank has signaled that it may soon be time to pause on interest rate hikes. Depending on the inflation data coming in, the next step would be to keep rates the same for an extended period of time in order to bring inflation down to the 2% target.
As long as inflation continues to trend downward, experts say a pause in rate hikes by the Fed could bring some stability to today’s volatile mortgage-rate market.
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. During March and April, prices fluctuated in the 6% range.
“Ultimately, more certainty about the Fed’s actions will help mitigate some of the volatility we’ve seen with mortgage rates,” says Odita Kushi, deputy chief economist at First American Financial Corporation.
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 three meetings of 2023. The decision to raise 0.25% on May 3 indicates that inflation is slowing and that the central bank may be Also soon. She is able to turn off her rate-raising system. While the central bank is unlikely to cut interest rates anytime soon, positive signals from the Federal Reserve and cooling inflation may relieve some of the upward pressure on mortgage rates.
“If inflation continues to come down, that’s going to be the biggest driver, outside of the Fed, that’s really going to help bring rates down to a better level and improve affordability for homebuyers,” says Scott Highmore, president of capital markets and mortgage pricing. at TD Bank.
However, mortgage rates are still much higher than they were a year ago. Few buyers are willing to jump into the housing market, depressing demand and causing house prices to drop in some areas, 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.
“The most important thing is that they find the right home. The second most important thing is obviously finding the most efficient way to finance it,” says Melissa Cohn, regional vice president of William Raveis Mortgage.
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 interest rate on a 30-year fixed mortgage is 6.79%, which is a drop of 8 basis points compared to a week ago. (The basis point is equal to 0.01%.) The most popular loan term is the 30-year fixed mortgage. A 30-year fixed-rate mortgage typically has 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 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 6.17%, which is down 3 basis points from seven days ago. You will definitely have a larger monthly payment with a 15-year fixed mortgage than with a 30-year fixed mortgage, even if the interest rate and loan amount are the same. But a 15-year loan will usually be the better deal, if you can afford the monthly payments. You’ll usually get a lower interest rate, and you’ll pay less interest overall because you’re paying off your mortgage faster.
5/1 adjustable rate mortgages
The average 5/1 ARM rate is 5.81%, up 1 basis point from where it was seven days ago. With an ARM mortgage, you’ll typically get a lower interest rate than a 30-year fixed-term mortgage for the first five years. However, 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. For borrowers who plan to sell or refinance their home before a price change, an adjustable rate mortgage may be a good option. If not, shifts in the market could cause the interest rate to increase dramatically.
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 rates collected by Bankrate to track daily mortgage rate trends. This table summarizes the average rates offered by lenders across the country:
Mortgage rates today
| loan period | Today’s price | last week | changes |
|---|---|---|---|
| 30 year mortgage rate | 6.79% | 6.87% | -0.08 |
| Fixed rate for 15 years | 6.17% | 6.20% | -0.03 |
| Jumbo 30 year mortgage rate | 6.84% | 6.94% | -0.10 |
| 30 year mortgage refinance rate | 6.93% | 7.00% | -0.07 |
Prices as of May 4, 2023.
How to find the best mortgage rates
To find a custom mortgage rate, meet with a local mortgage broker or use an online mortgage service. When shopping for mortgage rates, keep in mind your current goals and finances.
Things that affect the interest rate you may get on your mortgage include: your credit score, down payment, loan-to-value ratio and debt-to-income ratio. In general, you want a higher credit score, a larger down payment, a lower DTI, and a 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. You should talk to several lenders — such as local and national banks, credit unions, and online lenders — and compare shop to find the best mortgage loan for you.
What is a good loan term?
When choosing a mortgage, remember to consider the term of the loan or the payment schedule. The most common mortgage terms are 15 years and 30 years, although there are 10, 20 and 40 year mortgages as well. Another important difference is between fixed rate 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 set for a certain number of years (usually five, seven, or 10), and then the rate is adjusted annually based on the market interest rate.
One of the things to consider when choosing between a fixed rate and adjustable rate mortgage is the length of time you plan to stay in your home. For people who plan to stay long term in a new home, fixed rate mortgages may be the best option. While adjustable rate mortgages may have 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 have plans to keep your home for a few years. The best loan term depends on your specific situation and goals, so be sure to consider what’s important to you when choosing a mortgage.