Persistently high mortgage rates have made homes less affordable for buyers, despite some drops in home prices. But, it might still make sense to buy a home, if that’s what’s important to you.
A recent survey from TD Bank shows that 85% of first-time homebuyers still view buying a home as an important long-term investment.
Still, taking on a mortgage is one of the biggest financial decisions you’ll make in your lifetime, and the way mortgage interest rates rise and fall will have an impact on how much your home will cost you.
Mortgage interest rates rose dramatically in 2022 and they continue to fluctuate on a daily -- if not hourly -- basis. Stubborn inflation and the Federal Reserve’s ongoing battle to tame rates are the main catalysts for the mortgage rate surge of 2022. But inflation has cooled a bit and mortgage rates have too.
In recent weeks, the average rate for a 30-year fixed mortgage has been fluctuating in the 6% range.
For most people, a 30-year fixed rate mortgage, which is a home loan you pay back over the course of 30 years, is still the most affordable type of home loan available. It’s also the most common, with 90% of Americans opting for 30-year mortgages.
Here’s what you need to know about how 30-year mortgage rates work, what factors affect them and how to find the best rates for your specific financial situation.
Current 30-year mortgage rate trends
Thanks to stubbornly high inflation and ongoing rate hikes from the Federal Reserve, mortgage rates are roughly twice what they were a year ago.
To tame inflation, the central bank has raised its benchmark short-term interest rate, the federal funds rate, in an attempt to reduce prices by making it more expensive to borrow money.
While mortgage rates don’t directly track changes to the federal funds rate, they do respond to inflation, which has been steadily falling since its peak in June 2022. As a result, the Fed has signaled that it may soon be time to stop raising interest rates. Instead, the central bank is expected to hold rates where they are for an extended period of time as it waits for inflation to come back down to its 2% target.
If inflation continues to decline and the Fed acts in line with market expectations, it’s possible that mortgage levels will stabilize and potentially even drop. The most recent housing forecast from Fannie Mae shows the average rate for a 30-year fixed mortgage falling close to 5.7% by year end.
“I think mortgage rates are going to be pretty flat,” said Daryl Fairweather, chief economist at Redfin, a real estate brokerage. “But it really depends on what happens in the economy, and if inflation proves to be more persistent, I would expect mortgage rates to go up. If inflation starts to dissipate, I would expect mortgage rates to go down,” she adds.
Mortgage interest rates are unlikely to return to pre-pandemic lows of around 3% in the near future, but any decline in mortgage rates improves affordability for homebuyers. Even a few tenths of a percentage point can shave off tens of thousands of dollars from your loan over time. That’s why it’s critically important to compare offers from different lenders to find the best rate and most amenable loan terms for you.
Pros of a 30-year mortgage
- Lower monthly payments: Your monthly mortgage payments will be significantly lower than with a 15-year loan, offering more breathing room in your household budget -- something that may be critical for many Americans as inflation drives up costs. For a $500,000 mortgage with a 4% interest rate and 20% down, a 30-year loan would require a monthly payment of about $1,900 (excluding fees and insurance). That same loan, with a 15-year term, would require a monthly payment of approximately $2,960.
- You can take out a larger loan: Lower monthly payments generally allow the lender to approve you for a larger loan -- meaning you can buy a bigger or more expensive house. Just make sure the home you buy fits into your household budget.
- Less expensive path to homeownership: Lower monthly payments will give you a better chance to find and buy a home. A conventional, 30-year mortgage term can expand your budget and widen the circle of potential homes to buy.
Cons of a 30-year mortgage
- Higher interest rate: Generally, the longer the term, the higher the interest rate. Because it will take you longer to pay off your loan, the bank will ask you to pay more interest.
- It costs more in the long run: You will ultimately pay tens of thousands more dollars over the life of a 30-year loan than a shorter-term 15-year loan. Part of the larger cost involved is the interest you have to keep paying over 30 years. You’ll pay 15 additional years of interest with a 30-year mortgage compared to a 15-year mortgage.
- Slower to build equity: The less principal you pay off each month, the longer it takes to build equity. It also means there is less equity available to you if you want to refinance or take out a home equity loan or HELOC.
How to compare 30-year mortgage rates
In short, it’s worth your while to look at multiple lenders. It’s OK to submit multiple mortgage applications in a short period of time; the credit rating bureaus will recognize that you’re rate-shopping and though your credit score may absorb the impact of one hard credit check, it should be relatively minor.
Comparison shopping should eventually lead you to a 30-year mortgage with a competitive interest rate, though the specifics will depend heavily on your credit score and financial situation. One important note: When comparing quotes, it’s critical to make apples-to-apples comparisons. You’ll need to make sure that all of the criteria matches including loan term, points and especially interest rate. You cannot compare one quote that provides only an interest rate with another that includes an APR, which incorporates a different set of fees and costs.
Different types of 30-year mortgages
There are many different types of 30-year mortgages. Here’s are the most common ones:
- Conventional: These loans are offered by private insurers
- Government: These loans, which may be granted by the USDA, VA, and FHA, are backed by the US government.
- Fixed-rate: Loans with an interest rate that doesn’t change over the life of the loan; this means that your payment amount will be the same every month.
- Adjustable-rate: Though your interest rate might start low but can change periodically based on market conditions.
- Jumbo loan: These loans accommodate amounts above the maximum allowed for a conventional loan.
How to qualify for a mortgage
Different types of mortgages have various eligibility criteria. That noted, in general, you’ll have a better chance of being approved if you meet the following requirements:
- A decent credit score. To be approved for a conventional loan, you’ll need at least a good credit score. You’ll need an excellent credit score to get the lowest interest rate.
- An income. Showing stable employment or a regular income source will be a vital proof point that most lenders will require
- A down payment. Some lenders will require you to have a minimum down payment between 3% and 5% of the total home’s cost. There are some mortgages that will allow you to put less, or even nothing, down.
How to get the best 30-year mortgage rate
Developing a strong financial profile will help you get the best mortgage rate and term. Though there’s no one specific definition of what that looks like, it will help to have an excellent credit score, a substantial credit history and a regular source of income.
Current mortgage rates
|30-year fixed-rate FHA||6.36%||7.28%|
|30-year fixed-rate VA||6.62%||6.73%|
|30-year fixed-rate jumbo||7.03%||7.04%|
|15-year fixed-rate jumbo||6.40%||6.41%|
|5/1 ARM jumbo||6.08%||7.83%|
|7/1 ARM jumbo||7.00%||7.60%|
|30-year fixed-rate refinance||7.11%||7.13%|
|30-year fixed-rate FHA refinance||6.40%||7.33%|
|30-year fixed-rate VA refinance||6.70%||6.89%|
|30-year fixed-rate jumbo refinance||7.15%||7.17%|
|20-year fixed-rate refinance||6.88%||6.90%|
|15-year fixed-rate refinance||6.52%||6.55%|
|15-year fixed-rate jumbo refinance||6.55%||6.57%|
|5/1 ARM refinance||6.00%||7.74%|
|5/1 ARM jumbo refinance||6.07%||7.54%|
|7/1 ARM refinance||6.72%||7.72%|
|7/1 ARM jumbo refinance||7.01%||7.58%|
|10/1 ARM refinance||7.11%||7.64%|
We use information collected by Bankrate, which is owned by the same parent company as CNET, to track daily mortgage rate trends. The above table summarizes the average rates offered by lenders across the country.
It’s a loan you take out to buy a house that you pay back over 30 years. Most 30-year mortgages have a fixed rate, that never changes, which means that you’ll have the same monthly payment over the life of the loan. That’s why it’s important to lock in the best rate possible when you apply for a mortgage.
Though sometimes used interchangeably, these two terms are quite different. The interest rate is the percentage of a loan you’ll pay to the lender in exchange for borrowing money. With a mortgage, your monthly payment includes interest due. The annual percentage rate is typically higher than an interest rate because it includes all the costs of borrowing money including fees, discount points and private mortgage insurance (if applicable). Learn more about the difference between interest ratre and APR.
Mortgage rates fluctuate, so the lowest rate you see today might change by tomorrow. By comparing the rates of different lenders, you should be able to find a competitive rate based on your credit score and financial situation.
Your credit score, debts, loan-to-value ratio and economic factors all play a role in determining your mortgage rate.
Your credit score is one of the first things mortgage lenders will look at. You usually need a credit score of at least 740 to secure the lowest mortgage rates out there. Lenders will also scrutinize your debts and monthly expenses to make sure you can afford to pay your mortgage every month. If you can, it’s a good idea to pay down any high-interest debt, like credit cards, before applying for a home loan. Doing so will make you a more attractive candidate to banks.
Another factor that helps determine your mortgage rate is your loan-to-value ratio -- which is calculated by dividing how much of the loan you still need to pay off by your home’s value.
In addition, 30-year mortgage rates are also determined by a number of economic factors such as Federal Reserve policy and whether it raises interest rates, as well as the influence of inflation and how competitive the job market is, which are largely out of homebuyers’ control.
With this in mind, the best way to find a low rate is to shop around with different mortgage lenders and see who offers you the best rate. You should talk to at least two or three lenders before making a decision. With the proliferation of online lending, you have more options than ever to compare rates and find a lender you feel comfortable with.
Refinancing is an option for people who have built up equity in their home by making consistent mortgage payments over the years. When you refinance your home loan, you’re taking out a new loan to replace your old mortgage at a better interest rate.
If you’ve only had your mortgage for a few years and have less than 20% equity in your home, the numbers may not work out in your favor. That’s because if your loan-to-value ratio is too high, you’ll only end up paying more interest over a longer period of time, defeating the purpose of refinancing to begin with.
More mortgage tools and resources
You can use CNET’s mortgage calculator to help you determine how much house you can afford. CNET’s mortgage calculator takes into account things like your monthly income, expenses and debt payments to give you an idea of what you can manage financially. Your mortgage rate will depend in part on those income factors, as well as your credit score and the ZIP code where you’re looking to buy a house.