A few key mortgage rates sunk lower over the last seven days. The average interest rates for both 15-year fixed and 30-year fixed mortgages dipped. The average rate of the most common type of variable-rate mortgage, the 5/1 adjustable-rate mortgage, climbed higher.
As inflation surged in 2022, so too did mortgage rates. To rein in price growth, the Federal Reserve began bumping up its federal funds rate — a short term interest rate that determines what banks charge each other to borrow money. By making it more expensive to borrow, the central bank’s goal is to reduce prices by curtailing consumer spending.
During its July 26 meeting, the Fed initiated a 25-basis point (or 0.25%) hike to its federal funds rate, marking its 11th increase in the current rate hiking cycle. The most recent increase could have an impact on mortgage rates, but experts say the markets may have already factored it into rates.
“Mortgage rates will continue to ebb and flow week to week, but ultimately, I think rates will stick to that 6% to 7% range we’re seeing now,” said Jacob Channel, senior economist at loan marketplace LendingTree.
The Fed doesn’t set mortgage rates directly, but it does play an influential role. Mortgage rates move around on a daily basis in response to a range of economic factors, including inflation, employment and the broader outlook for the economy. A lower inflation rate is good news for mortgage rates, but the potential for additional hikes from the central bank this year will keep upward pressure on already high rates.
Rather than worrying about mortgage rates, though, homebuyers should focus on what they can control: getting the best rate they can for their financial situation.
To increase your odds at qualifying for the lowest rate available, take the steps necessary to improve your credit score and to save for a down payment. 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 make an apples-to-apples comparison among lenders.
30-year fixed-rate mortgages
The 30-year fixed-mortgage rate average is 7.53%, which is a decrease of 1 basis point from seven days ago. (A basis point is equivalent to 0.01%.) The most common loan term is a 30-year fixed mortgage. A 30-year fixed mortgage will typically have a greater 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 timeframe — if you’re looking for a lower monthly payment, a 30-year fixed mortgage may be a good option.
15-year fixed-rate mortgages
The average rate for a 15-year, fixed mortgage is 6.79%, which is a decrease of 3 basis points from the same time last week. You’ll definitely have a larger monthly payment with a 15-year fixed mortgage compared to 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, as long as you can 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 6.56%, an increase of 2 basis points from seven days ago. For the first five years, you’ll usually get a lower interest rate with a 5/1 adjustable-rate mortgage compared to a 30-year fixed mortgage. But since the rate adjusts with the market rate, you might end up paying more after that time, as described in the terms of your loan. 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.
Mortgage rate trends
Mortgage rates were historically low throughout most of 2020 and 2021, but increased steadily throughout 2022 as the Federal Reserve began aggressively hiking interest rates. Now, mortgage rates are well above where they were a year ago. What does this mean for homebuyers this year?
“Mortgage rates have hovered in the 6% to 7% range for the past 10 months. Though home prices have softened slightly nationally, the still-high cost of borrowing means hopeful home buyers have felt little relief,” said Hannah Jones, economic research analyst at Realtor.com.
However, if inflation continues to decline and the Fed is able to hold rates where they are and eventually cut them, mortgage rates are likely to decrease slightly in 2023. However, they’re highly unlikely to return to the rock-bottom levels of just a few years ago.
The most recent housing forecast from Fannie Mae calls for the average 30-year fixed mortgage rate to close out the year at around 6.6%.
“Mortgage rates have been volatile for some time now and while they could eventually start trending down over the next six months to a year as inflation growth continues to cool, their path is probably going to be bumpy,” Channel said.
We use data collected by Bankrate to track daily mortgage rate trends. This table summarizes the average rates offered by lenders across the US:
Today’s mortgage interest rates
| Loan term | Today’s Rate | Last week | Change |
|---|---|---|---|
| 30-year mortgage rate | 7.53% | 7.54% | -0.01 |
| 15-year fixed rate | 6.79% | 6.82% | -0.03 |
| 30-year jumbo mortgage rate | 7.56% | 7.53% | +0.03 |
| 30-year mortgage refinance rate | 7.66% | 7.78% | -0.12 |
Rates as of Sept. 5, 2023.
How to shop for the best mortgage rate
When you are ready to apply for a loan, you can reach out to a local mortgage broker or search online. When researching home mortgage rates, consider your goals and current finances.
Specific interest rates will vary based on factors including credit score, down payment, debt-to-income ratio and loan-to-value ratio. Having a higher 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.
Aside from the mortgage rate, other costs including closing costs, fees, discount points and taxes might also affect the cost of your home. You should speak with a variety of lenders — such as local and national banks, credit unions and online lenders — and comparison shop to find the best loan for you.
What’s the best loan term?
When picking a mortgage, remember to consider the loan term, or payment schedule. The most common loan terms are 15 years and 30 years, although 10-, 20- and 40-year mortgages also exist. Mortgages are further divided into fixed-rate and adjustable-rate mortgages. For fixed-rate mortgages, interest rates are fixed for the life of the loan. For adjustable-rate mortgages, interest rates are set for a certain number of years (typically five, seven or 10 years), then the rate changes annually based on the market interest rate.
When deciding between a fixed-rate and adjustable-rate mortgage, you should think about how long you plan to live in your home. For people who plan on staying long-term in a new house, fixed-rate mortgages may be the better option. Fixed-rate mortgages offer greater stability over time in comparison to adjustable-rate mortgages, but adjustable-rate mortgages may offer lower interest rates upfront. However, you may get a better deal with an adjustable-rate mortgage if you only plan to keep your home for a couple years. The best loan term is entirely dependent on your specific situation and goals, so make sure to consider what’s important to you when choosing a mortgage.
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