Ahead of the Federal Reserve's May meeting, a handful of important mortgage rates decreased over the last seven days. Both 15-year fixed and 30-year fixed mortgage rates declined. The average rate of the most common type of variable-rate mortgage, the 5/1 adjustable-rate mortgage, also moved a bit lower.
The Federal Reserve will hold its May meeting next week to determine whether any further rate hikes will be necessary to tame inflation. If it does proceed with an increase, it's likely to be the last one in this rate-hiking cycle and will be by just a quarter of a percentage point. After that, the central bank will hold rates where they are for an extended period of time to bring inflation down to its 2% target. But seeing as inflation has been steadily declining each month, there's a chance that a pause could come as soon as next week.
This could have an impact on mortgage rates, but it's difficult to say just how much for a market already in flux.
"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.
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.
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.
"Even though home prices in many parts of the country have fallen since the start of the year, high rates make buying prohibitively expensive for many," says Jacob Channel, senior economist at loan marketplace LendingTree. It's still difficult for many buyers, particularly those looking for their first home, to afford a monthly payment.
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
For a 30-year, fixed-rate mortgage, the average rate you'll pay is 6.85%, which is a decline of 4 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 rate mortgage will usually have a smaller monthly payment than a 15-year one -- but typically a higher interest rate. 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 6.17%, which is a decrease of 10 basis points from the same time last week. Compared to a 30-year fixed mortgage, a 15-year fixed mortgage with the same loan value and interest rate will have a larger 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 usually 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 ARM has an average rate of 5.80%, a fall of 1 basis point compared to a week ago. With an ARM mortgage, you'll usually get a lower interest rate than a 30-year fixed mortgage for the first five years. However, since the rate changes with the market rate, you may end up paying more after that time, as described in the terms of your loan. Because of this, an ARM may be a good option if you plan to sell or refinance your house before the rate changes. If not, shifts in the market could 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 information collected by Bankrate to track rate changes over time. This table summarizes the average rates offered by lenders across the country:
Current average mortgage interest rates
|Loan type||Interest rate||A week ago||Change|
|30-year fixed rate||6.85%||6.89%||-0.04|
|15-year fixed rate||6.17%||6.27%||-0.10|
|30-year jumbo mortgage rate||6.92%||6.93%||-0.01|
|30-year mortgage refinance rate ||7.00%||7.03%||-0.03|
Rates as of May 1, 2023.
How to find the best mortgage rates
When you are ready to apply for a loan, you can connect with a local mortgage broker or search online. When looking into home mortgage rates, take into account your goals and current financial situation.
A range of factors -- including your down payment, credit score, loan-to-value ratio and debt-to-income ratio -- will all affect the interest rate on your mortgage. Generally, you want a higher credit score, a higher down payment, a lower DTI and a lower LTV to get a lower interest rate.
Apart from the mortgage rate, other costs including closing costs, fees, discount points and taxes might also impact the cost of your house. Be sure to comparison shop with multiple lenders -- like credit unions and online lenders in addition to local and national banks -- in order to get a mortgage that's the right fit for you.
What's the best loan term?
One important thing to keep in mind 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 fixed for the duration of the loan. For adjustable-rate mortgages, interest rates are the same for a certain number of years (usually five, seven or 10 years), then the rate changes annually based on the market rate.
When choosing between a fixed-rate and adjustable-rate mortgage, you should think about the length of time 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. While adjustable-rate mortgages may offer lower interest rates upfront, fixed-rate mortgages are more stable in the long term. If you don't plan to keep your new home for more than three to 10 years, though, an adjustable-rate mortgage might give you a better deal. There is no best loan term as a rule of thumb; it all depends on your goals and your current financial situation. It's important to do your research and know what's most important to you when choosing a mortgage.