Several benchmark refinance rates slid lower this week. If you're in the market for a refi, now's a good time to assess your options.
Both 15-year fixed and 30-year fixed refinances saw their mean rates recede significantly this week, but the average rate on 10-year fixed refinance plummeted by more than three-tenths of a percentage point.
Amid its ongoing battle to fight inflation, the Federal Reserve announced a 0.25% hike to its target federal funds rate on March 22. Refinance rates, like mortgage rates, fluctuate on a daily basis and could see further movement in response.
"Going forward, it's likely that mortgage rates will continue to fluctuate as the housing market continues to react to the uncertainty that permeates today's economy," says Jacob Channel, senior economist at loan marketplace LendingTree.
As the Fed aggressively ratcheted up the federal funds rate in 2022, refinance rates spiked, but we're seeing signs that rates may be slowly starting to level out as inflation eases.
For the first two meetings of 2023, the Fed has adopted a slower pace of increases as it waits to see the cumulative effects of policy changes on inflation.
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 in order to reach its 2% target for inflation.
Looking at average mortgage rate data for the past year, mortgage rates hit a peak in late 2022 and have been trending down since then. We're still a long way 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," says Greg McBride, CFA and chief financial analyst at Bankrate. (Bankrate, like CNET Money, is owned by Red Ventures.) He expects 30-year fixed mortgage rates to end the year near 5.25%.
Regardless of where rates are headed, 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 get a lower interest rate than your current rate, refinancing will likely save you money. Do the math to see if it makes sense for your current finances and goals. If you do decide to refinance, make sure you compare rates, fees, and the annual percentage rate -- which shows the total cost of borrowing -- from different lenders to find the best deal.
The average rate for a 30-year fixed refinance loan is currently 6.85%, a decrease of 13 basis points over this time last week. (A basis point is equivalent to 0.01%.) Refinancing to a 30-year fixed loan from a shorter loan term can lower your monthly payments. If you're having difficulties making your monthly payments currently, a 30-year refinance could be a good option for you. However, interest rates for a 30-year refinance will typically be higher than rates for a 10- or 15-year refinance. It'll also take you longer to pay off your loan.
The current average interest rate for 15-year refinances is 5.96%, a decrease of 19 basis points compared to one week ago. With a 15-year fixed refinance, you'll have a larger monthly payment than a 30-year loan. However, you'll also be able to pay off your loan quicker, saving you money over the life of the loan. 15-year refinance rates are typically lower than 30-year refinance rates, which will help you save even more in the long run.
The average 10-year fixed refinance rate right now is 6.08%, a decrease of 31 basis points over last week. 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 be a good deal, since paying off your house sooner will help you save on interest in the long run. But you should confirm that you can afford a higher monthly payment by evaluating your budget and overall financial situation.
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 data collected by Bankrate. Here's a table with the average refinance rates provided by lenders across the US:
|Product||Rate||A week ago||Change|
|30-year fixed refi||6.85%||6.98%||-0.13|
|15-year fixed refi||5.96%||6.15%||-0.19|
|10-year fixed refi||6.08%||6.39%||-0.31|
Rates as of April 7, 2023.
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.
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.