A couple of important mortgage rates moved higher over the last week. We saw the average interest rates for both 30-year fixed and 15-year fixed mortgage rates both trend upward, while the average rate of 5/1 adjustable-rate mortgages decreased.
Mortgages hit a 20-year high in late 2022, but now the macroeconomic environment is changing again. Rates dipped significantly in January before climbing back up in February. In March, rates bumped up and down in the 6% range.
“We’re in one of the most volatile markets in terms of rates since 2008,” says Jennifer Beeston, senior vice president at Guaranteed Rate, a national mortgage lender.
The Federal Reserve announced a 25-basis point increase to its benchmark short-term interest rate on March 22. This could have an impact on mortgage rates, but it’s difficult to say just how much for a market already in flux. While rates don’t directly track changes to the federal funds rate, they do respond to inflation. Overall, inflation remains high but has been slowly but consistently falling every month since it peaked in June 2022.
After raising rates dramatically in 2022, the Fed opted for smaller, 25-basis-point rate increases in its first two meetings of 2023. The decision to hike by 0.25% on March 22 suggests that inflation is cooling and the central bank may be able to ease up — but not stop — on its rate hikes.
While mortgage rates have dipped a bit from their December 2022 peak, they still aren’t dramatically lower. Fewer buyers are willing to jump into the housing market, driving demand down and causing home prices to ease, but that’s only part of the home affordability equation.
What does this mean for homebuyers this year? Mortgage rates are likely to decrease slightly in 2023, although they’re highly unlikely to return to the rock-bottom levels of 2020 and 2021. However, rate volatility may continue for some time. “Expect mortgage rates to yo-yo up and down in the first half of the year, at least until there is a consensus about when the Fed will conclude raising interest rates,” 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 consistently 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 they can for their situation.
“Instead of getting into the minutiae of what the market’s doing every six seconds, buyers need to focus on what it is they’re really trying to accomplish and have a good game plan,” Beeston says.
Take steps to improve your credit score and save for a down payment to increase your odds of qualifying for the lowest rate available. Also, be sure to compare the 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 30-year fixed-mortgage rate average is 6.80%, which is an increase of four basis points from one week ago. (A basis point is equivalent to 0.01%.) Thirty-year fixed mortgages are the most frequently used loan term. A 30-year fixed mortgage will usually have a higher interest rate than a 15-year fixed rate mortgage — but also a lower monthly payment. You won’t be able to pay off your house as quickly and you’ll pay more interest over time, but a 30-year fixed mortgage is a good option if you’re looking to minimize your monthly payment.
15-year fixed-rate mortgages
The average rate for a 15-year, fixed mortgage is 6.13%, which is an increase of 15 basis points compared to 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 bigger monthly payment. But a 15-year loan will usually be the better deal, as long as you’re able to afford the monthly payments. You’ll typically get a lower interest rate, and you’ll pay less interest in total because you’re paying off your mortgage much quicker.
5/1 adjustable-rate mortgages
A 5/1 adjustable-rate mortgage has an average rate of 5.71%, a downtick of two basis points compared to last week. For the first five years, you’ll typically get a lower interest rate with a 5/1 ARM compared to a 30-year fixed mortgage. However, since the rate changes with the market rate, you could end up paying more after that time, as described in the terms of your loan. If you plan to sell or refinance your house before the rate changes, an adjustable-rate mortgage may make sense for you. If not, changes in the market might significantly increase your interest rate.
Mortgage rate trends
Mortgage rates were historically low throughout most of 2020 and 2021 but increased steadily throughout 2022. Now, mortgage rates are roughly twice what they were a year ago, pushed up by persistently high inflation. That high inflation prompted the Fed to raise its target federal funds rate seven times in 2022. By raising rates, the Fed makes it more expensive to borrow money and more appealing to keep money in savings, suppressing demand for goods and services.
Mortgage interest rates don’t move in lockstep with the Fed’s actions in the same way that, say, rates for a home equity line of credit do. But they do respond to inflation. As a result, cooling inflation data and positive signals from the Fed will influence mortgage rate movement more than the most recent 25-basis-point rate hike.
We use rates collected by Bankrate to track daily mortgage rate trends. This table summarizes the average rates offered by lenders nationwide:
Average mortgage interest rates
|30-year jumbo mortgage rate||6.86%||6.80%||+0.06|
|30-year mortgage refinance rate||6.90%||6.85%||+0.05|
Rates as of April 14, 2023.
How to find personalized mortgage rates
When you are ready to apply for a loan, you can reach out to a local mortgage broker or search online. Make sure to consider your current financial situation and your goals when searching for a mortgage.
Things that affect the mortgage interest rate you might get include: your credit score, down payment, loan-to-value ratio and your debt-to-income ratio. Having a good credit score, a higher down payment, a low DTI, a low LTV or any combination of those factors can help you get a lower interest rate.
The interest rate isn’t the only factor that affects the cost of your home. Be sure to also consider other factors such as fees, closing costs, taxes and discount points. Be sure to speak with several different lenders — for example, local and national banks, credit unions and online lenders — and comparison shop to find the best mortgage for you.
How does the loan term impact my mortgage?
One important factor to consider when choosing a mortgage is the loan term, or payment schedule. The mortgage terms most commonly offered are 15 years and 30 years, although you can also find 10-, 20- and 40-year mortgages. Another important distinction is between fixed-rate and adjustable-rate mortgages. The interest rates in a fixed-rate mortgage are set for the duration of the loan. For adjustable-rate mortgages, interest rates are stable for a certain number of years (usually five, seven or 10 years), then the rate fluctuates annually based on the current interest rate in the market.
One factor to take into consideration when choosing between a fixed-rate and adjustable-rate mortgage is how long you plan on staying in your house. Fixed-rate mortgages might be a better fit for those who plan on staying in a home for quite some time. Fixed-rate mortgages offer greater stability over time compared to adjustable-rate mortgages, but adjustable-rate mortgages may offer lower interest rates upfront.
If you don’t plan to keep your new house for more than three to 10 years, however, an adjustable-rate mortgage might give you a better deal. There is no best loan term as an overarching rule; it all depends on your goals and your current financial situation. Make sure to do your research and think about what’s most important to you when choosing a mortgage.