Mortgage rates have fallen for five consecutive weeks, and prospective homebuyers have taken notice.
Applications for home loans have steadily increased since mortgage rates first dipped in early November, according to the Mortgage Bankers Association.
The average rate for a 30-year fixed mortgage was 7.41% last week, compared to its peak at 8.09% earlier this fall. according to CNET’s sister site Bankrate. However, mortgage rates are still higher than they were a year ago, and home affordability remains a major obstacle.
“The combination of home prices and still-high rates means affordability remains historically low despite notable improvement from recent peaks,” Matt Graham of Mortgage News Daily told CNET.
Mortgage rates are determined by an array of economic conditions as well as specific factors like your credit score and loan type. They can also vary widely by lender. Because of this, it’s important to compare loan offers from multiple lenders and choose the offer with the best rate and fees for you.
What to know first
Mortgage interest rates rose rapidly after the Federal Reserve started raising its benchmark short-term interest rate, the federal funds rate, last year to address soaring inflation. Average fixed mortgage rates surged above 8% this fall, but have since fallen to about 7.5% in November.
While this marks the first meaningful decline in mortgage rates in months, average purchase rates are still near a two-decade high, leaving many prospective buyers priced out of the market.
The recent drop in rates is in part due to signs of falling inflation and messaging from the Fed that the current rate-hike cycle may be nearing its end. However, experts say it’s difficult to predict whether mortgage rates will continue to fall (and by how much). That’s because inflation is still too high and the Fed isn’t expected to cut rates until mid-2024.
If inflation continues to decline and the Fed is able to avoid additional rate hikes, mortgage rates could continue to see some declines. Fannie Mae predicts the average rate for a 30-year fixed mortgage will end the year around 7.3%, but won’t return to the low-6% range until halfway through next year.
What is a mortgage rate?
Your mortgage rate is the percentage of interest a lender charges for providing the loan you need to buy a home. Multiple factors determine the rate you’re offered. Some are specific to you and your financial situation, and others are influenced by macro market conditions, such as inflation, the Fed’s monetary policy and the overall demand for loans.
What factors determine my mortgage rate?
While the broader economy plays a key role in mortgage rates, some key factors under your control affect your rate:
- Your credit score: Lenders offer the lowest available rates to borrowers with excellent credit scores of 740 and above. Because lower credit scores are deemed riskier, lenders charge higher interest rates to compensate.
- The size of your loan: The size of your loan can impact the interest rate you qualify for.
- The loan term: The most common mortgage is a 30-year fixed-rate loan, which spreads your payments over three decades. Shorter loans, such as 15-year mortgages, typically have lower rates but larger monthly payments.
- The loan type: The type of mortgage you choose impacts your interest rate. Some loans have a fixed rate for the entire life of the loan. Others have an adjustable rate that have lower rates at the start of the loan but could result in higher payments down the road.
Current mortgage and refinance rates
What are today’s mortgage rates?
As of Nov. 30, the average 30-year fixed mortgage rate is 7.66% with an APR of 7.68%. The average 15-year fixed mortgage rate is 6.84% with an APR of 6.88%. And the average 5/1 adjustable-rate mortgage is 6.81% with an APR of 7.98%, according to Bankrate’s latest survey of the nation’s largest mortgage lenders.
Current mortgage rates
|30-year fixed-rate FHA||6.48%||7.39%|
|30-year fixed-rate VA||6.60%||6.72%|
|30-year fixed-rate jumbo||7.59%||7.60%|
|15-year fixed-rate jumbo||6.82%||6.84%|
|5/1 ARM jumbo||6.69%||7.74%|
|7/1 ARM jumbo||6.92%||7.76%|
|30-year fixed-rate refinance||7.63%||7.64%|
|30-year fixed-rate FHA refinance||6.53%||7.47%|
|30-year fixed-rate VA refinance||6.62%||6.83%|
|30-year fixed-rate jumbo refinance||7.70%||7.72%|
|20-year fixed-rate refinance||7.40%||7.42%|
|15-year fixed-rate refinance||6.87%||6.90%|
|15-year fixed-rate jumbo refinance||6.90%||6.91%|
|5/1 ARM refinance||6.71%||7.71%|
|5/1 ARM jumbo refinance||6.78%||7.50%|
|7/1 ARM refinance||7.02%||7.87%|
|7/1 ARM jumbo refinance||6.81%||7.72%|
|10/1 ARM refinance||7.67%||7.85%|
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.
What is an ‘annual percentage rate’ for mortgages?
The annual percentage rate, or APR, is usually higher than your loan’s interest rate and represents the true cost of your loan. It includes the interest rate and other costs such as lender fees or prepaid points. So, while you might be tempted with an offer for “interest rates as low as 6.5%,” look at the APR instead to see how much you’re really paying.
Pros and cons of getting a mortgage
You’ll be able to deduct the interest on the mortgage on your annual tax bill.
You’ll have to budget for closing costs to close the mortgage, which add up to tens of thousands of dollars in some states.
How does the APR affect principal and interest?
Most mortgage loans are based on an amortization schedule: You’ll pay the same amount each month for the life of the loan, but the generated interest will be highest at the beginning and will taper as the principal (the amount you borrowed) decreases. Your amortization schedule will show how much of your monthly payment goes to interest and how much pays down the principal. Most borrowers find a fixed, predictable monthly payment more convenient.
Shopping for mortgage rates
Mortgage lenders often publish their rates for different mortgage types, which can help you research and narrow down where you’ll apply for preapproval. But an advertised rate isn’t always the rate you’ll get. When shopping for a new mortgage, it’s important to compare not just mortgage rates but also closing costs and any other fees associated with the loan. Experts recommend shopping around and reaching out to multiple lenders for quotes, and not rushing the process.