Leading into today’s Federal Reserve meeting, refinance rates are varied. The average rate nationwide for a 15-year fixed-rate refinance ticked up this week, while 30-year fixed refinance rates trailed off. The average rate on 10-year fixed refinances was stable.
Amid its ongoing battle to fight inflation, the Federal Reserve announced a 0.25% hike to its target federal funds rate today. Refinance rates, which fluctuate daily, could see further movement in response, but experts say today’s increase may already be baked into the market expectations.
“The market has already built in the expectation for a 25 basis point hike in May and then no further hikes after that,” said Scott Haymore, head of capital markets and mortgage pricing at TD Bank.
Today’s increase will likely be the last one in the central bank’s current rate hiking regime, possibly for the year, said Jacob Channel, senior economist at loan marketplace LendingTree. With inflation falling steadily from its peak last summer, the central bank has signaled that ongoing rate hikes may no longer be necessary to reach its 2% target for inflation. In the meantime, experts expect the Fed to pause and hold rates steady for a while.
As the Fed aggressively ratcheted up the federal funds rate in 2022, refinance rates spiked, but we’re seeing signs that rates are slowly starting to level out as inflation eases. For the first three meetings of 2023, the Fed has adopted smaller rate increases — 25 basis points as compared to the 75- and 50-basis point increases common last year.
While still high, inflation has been steadily declining each month since its peak in June 2022. Following its March meeting, the Fed signaled that “some additional policy firming” may be necessary to reach its 2% target for inflation.
“Ultimately, more certainty about the Fed’s actions will help to smooth out some of the volatility we have seen with mortgage rates,” said Odeta Kushi, deputy chief economist at First American Financial Corporation.
Looking at average mortgage rate data for the past year, mortgage rates peaked in late 2022 and have been trending down since then. We’re still far from the record-low refinance rates of 2020 and 2021, but borrowers may see rates fall in 2023.
“With the backdrop of easing inflation pressures, we should see more consistent declines in mortgage rates as the year progresses, particularly if the economy and labor market slow noticeably,” said Greg McBride, CFA and chief financial analyst at Bankrate. (Bankrate, like CNET Money, is owned by Red Ventures.)
Regardless of where rates head next, homeowners shouldn’t focus on timing the market and should instead decide if refinancing makes sense for their financial situation. As long as you can secure a lower interest rate than your current mortgage rate, refinancing will likely save you money. Do the math to see if it makes sense for your current finances and goals. Before refinancing, always shop multiple lenders to compare rates, fees and the annual percentage rate to find the best deal.
15-year fixed-rate refinance
For 15-year fixed refinances, the average rate is currently at 6.27%, an increase of two basis points over last week. With a 15-year fixed refinance, you’ll have a larger monthly payment than a 30-year loan. But you’ll save more money over time, because you’re paying off your loan quicker. You’ll also typically get lower interest rates compared to a 30-year loan. This can help you save even more in the long run.
10-year fixed-rate refinance
For 10-year fixed refinances, the average rate is currently at 6.33%, unmoved compared to one week ago. Compared to a 15- or 30-year refinance, a 10-year refinance will usually have a lower interest rate but higher monthly payment. A 10-year refinance can help you pay off your house much quicker and save on interest. Just be sure to carefully consider your budget and current financial situation to make sure that you can afford a higher monthly payment.
Where rates are headed
At the start of the pandemic, refinance interest rates hit a historic low. But in early 2022, the Fed started hiking interest rates in an effort to curb runaway inflation. While the Fed doesn’t directly set mortgage rates, the Fed rate hikes led to an increased cost of borrowing among most consumer loan products, including mortgages and refinances. Mortgage rates hit a 20-year high in late 2022.
Recent data shows that overall inflation has been falling slowly but steadily since it peaked in June 2022, but it still remains well above the Fed’s 2% inflation goal. After raising rates by 25 basis points in March, the Fed has indicated (PDF) it plans to slow — but not stop — the pace of its rate hikes throughout 2023. Both of these factors are likely to contribute to a gradual pull-back of mortgage and refinance rates this year, although consumers shouldn’t expect a sharp drop or a return to pandemic-era lows.
We track refinance rate trends using information collected by Bankrate. Here’s a table with the average refinance rates reported by lenders across the country:
Average refinance interest rates
|Product||Rate||A week ago||Change|
|30-year fixed refi||6.96%||6.99%||-0.03|
|15-year fixed refi||6.27%||6.25%||+0.02|
|10-year fixed refi||6.33%||6.33%||N/C|
Rates as of May 3, 2023.
How to shop for refinance rates
It’s important to understand that the rates advertised online often require specific conditions for eligibility. Your interest rate will be influenced by market conditions as well as your specific credit history, financial profile and application.
Having a high credit score, a low credit utilization ratio and a history of consistent and on-time payments will generally help you get the best interest rates. You can get a good feel for average interest rates online, but make sure to speak with a mortgage professional in order to see the specific rates you qualify for. To get the best refinance rates, you’ll first want to make your application as strong as possible. The best way to improve your credit ratings is to get your finances in order, use credit responsibly and monitor your credit regularly. Don’t forget to speak with multiple lenders and shop around.
Refinancing can be a great move if you get a good rate or can pay off your loan sooner — but consider carefully whether it’s the right choice for you at the moment.
Is now a good time to refinance?
In order for a refinance to make sense, you’ll generally want to get a lower interest rate than your current rate. Aside from interest rates, changing your loan term is another reason to refinance. When deciding whether to refinance, be sure to take into account other factors besides market interest rates, including how long you plan to stay in your current home, the length of your loan term and the amount of your monthly payment. And don’t forget about fees and closing costs, which can add up.
As interest rates increased throughout 2022, the pool of refinancing applicants contracted. If you bought your house when interest rates were lower than they are today, there may not be a financial benefit in refinancing your mortgage.