2023 has been a difficult year for prospective homebuyers, who have faced soaring mortgage rates, expensive home prices and low housing inventory. But last week, several important mortgage rates began sliding downward in what could be an about-face in long-term highs. There was a marked improvement in 15-year fixed and 30-year fixed mortgage rates, and the 5/1 adjustable-rate mortgage also decreased.
Since early 2022, when the Federal Reserve kicked off aggressive interest rate hikes to combat inflation, mortgage rates have increased steadily from their historic pandemic-era lows. Mortgage rates are now at their highest peak in more than two decades. Home affordability is at the worst level in nearly four decades, and home loan applications have made new cyclical lows, according to the housing authority Fannie Mae.
While the central bank does not directly set mortgage rates, they’re affected by the Fed’s rate decisions. During its Nov. 1 policy meeting, the Fed held its key interest rate steady at a range of 5.25% to 5.5%. Historically, when the Fed stops hiking rates, mortgage rates tend to cool, according to Logan Mohtashami, lead analyst at HousingWire. However, inflation is still too high, and there’s a chance the Fed may carry out one more rate hike in December.
About these rates: Like CNET, Bankrate is owned by Red Ventures. This tool features partner rates from lenders that you can use when comparing multiple mortgage rates.
Fluctuations in the mortgage and housing markets are always going to happen. That’s why experts say it’s a good idea for homebuyers to focus on what they can control: getting the best rate for their financial situation.
Mortgage rate trends
With average mortgage rates around 8%, the question is what the rest of the year has in store for prospective homebuyers. Experts say mortgage rates will remain near their current levels in the coming weeks. Fannie Mae expects the average 30-year fixed mortgage rate to close out the year at 7.3%.
Moreover, wage growth hasn’t kept up with inflation, and household income hasn’t outpaced increased housing costs. According to a recent report by the real estate firm Redfin, homebuyers need an income of $114,627 in order to afford a median-priced house. That’s $40,000 more than what the typical US household earns.
“As long as prices stay elevated, the way to help ease housing affordability is for wages to grow and mortgage rates to fall,” Mohtashami said.
Over the long term, progress on inflation and other key economic indicators could potentially ease some of the upward pressure on mortgage rates. But even when the Fed stops hiking interest rates, it generally takes 12 months before mortgage rates see substantial declines, according to Niladri Mukherjee, chief investment officer at TIAA Wealth Management.
“Until mortgage rates drift back down to a reasonable level, let’s say 5.5% or 6%, I don’t think mortgage applications are going to pick back up again,” Mukherjee told CNET.
Average mortgage interest rates today
We use data collected by Bankrate to track daily mortgage rate trends. This table summarizes the average rates offered by lenders across the country:
| Loan type | Interest rate | A week ago | Change |
|---|---|---|---|
| 30-year fixed rate | 7.79% | 8.05% | -0.26 |
| 15-year fixed rate | 7.15% | 7.19% | -0.04 |
| 30-year jumbo mortgage rate | 7.75% | 8.02% | -0.27 |
| 30-year mortgage refinance rate | 7.92% | 8.15% | -0.23 |
Rates as of Nov. 6, 2023.
What homebuyers should know about mortgage rates
High mortgage rates discourage prospective homebuyers and potential sellers alike. Most homeowners have an interest rate well below 6% and aren’t willing to move because it would mean giving up their low mortgage rate, said Jason Walter, real estate agent at Realty One Group Complete. “That’s one of the main reasons why existing housing inventory remains 40% below pre-COVID levels,” he said.
While today’s housing market is especially intimidating for first-time homebuyers, it doesn’t mean it’s unrealistic to buy. That all depends on your financial situation and long-term goals.
The most important thing is to make a budget and try to stay within your means. Though mortgage rates and home prices are high, the housing market won’t be unaffordable forever. It’s always a good time to save for a down payment and improve your credit score to help you secure a competitive mortgage rate when the time is right for you.
What is a good loan term?
When picking a mortgage, remember to consider the loan term, or payment schedule. The most common mortgage terms are 15 years and 30 years, although 10-, 20- and 40-year mortgages also exist. Mortgages can either be fixed-rate and adjustable-rate mortgages. The interest rates in a fixed-rate mortgage are set for the duration of the loan. The interest rates for an adjustable-rate mortgage are only fixed for a certain amount of time (commonly five, seven or 10 years), after which the rate adjusts annually based on the current interest rate in the market.
When choosing between a fixed-rate and adjustable-rate mortgage, consider the length of time you plan to live in your home. If you plan on living long-term in a new house, a fixed-rate mortgage may be the better option. Fixed-rate mortgages offer more stability over time compared to adjustable-rate mortgages, but adjustable-rate mortgages may offer lower interest rates upfront. As a result, a growing share of homebuyers are leaning toward ARMs.
30-year fixed-rate mortgages
The average 30-year fixed mortgage interest rate is 7.79%, which is a decline of 26 basis points from one week ago. (A basis point is equivalent to 0.01%.) A 30-year fixed mortgage, the most common loan term, is a good option if you’re looking to minimize your monthly payment. A 30-year fixed rate mortgage will usually have a lower monthly payment than a 15-year one, but often a higher interest rate.
15-year fixed-rate mortgages
The average rate for a 15-year, fixed mortgage is 7.15%, which is a decrease of 4 basis points from seven days ago. Though you’ll have a bigger monthly payment compared to a 30-year fixed mortgage, a 15-year loan will usually be the better deal if you can afford the monthly payments. You’ll usually be able to get a lower interest rate, pay less interest in the long run and pay off your mortgage sooner.
5/1 adjustable-rate mortgages
A 5/1 ARM has an average rate of 7.08%, a slide of 4 basis points compared to last week. You’ll typically get a lower interest rate (compared to a 30-year fixed mortgage) with a 5/1 ARM in the first five years of the mortgage. But you could end up paying more after that time, depending on how the rate adjusts with the market rate. For borrowers who plan to sell or refinance their house before the rate changes, an ARM could be a good option. If not, changes in the market may significantly increase your interest rate.
How to find personalized mortgage rates
You can get a personalized mortgage rate by contacting your local mortgage broker or using an online calculator. To find the best home mortgage, take into account your goals and current finances. Be sure to look at the annual percentage rate, or APR, which reflects the mortgage interest rate plus other borrowing charges. By comparing the total cost of borrowing from multiple lenders, you can make a more accurate apples-to-apples comparison.
Your specific mortgage rate will vary based on factors including your down payment, credit score, debt-to-income ratio and loan-to-value ratio. Having a higher down payment, a good credit score, a low DTI and 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 fees, closing costs, taxes and discount points. You should shop around and talk to several different lenders from local and national banks, credit unions and online lenders to find the best mortgage for you.
Source: cnet.com