High mortgage rates are preventing many people from being able to purchase a home.
The average rate for a 30-year fixed mortgage was 7.55% last week, according to CNET sister site Bankrate. That rate has hovered above 7% for six consecutive weeks.
Mortgage rates vary widely across lenders. It’s important to shop around for a competitive rate and compare multiple loan offers to find one that fits your financial needs.
Read more: Mortgage Rate Forecast: Here’s What Experts Predict
What to know first
At the start of 2023, experts predicted mortgage rates would gradually decline over the course of the year. But that didn’t happen. Average fixed mortgage rates are now above 7.5%, a level not seen in more than two decades.
This is largely the result of inflation and the Federal Reserve’s ongoing battle to tame it. In March 2022, the Fed began bumping up its benchmark federal funds rate to combat high inflation. Mortgage rates, which are indirectly impacted by rate hikes from the Fed, followed suit.
Interest rate hikes from the Federal Reserve have essentially put a floor under mortgage rates. Even if the Fed doesn’t increase rates further in 2023, mortgage rates are likely to stay elevated until the central bank actually starts making cuts to its key rate.
“The million-dollar question is how long the Fed will keep rates elevated to ensure it wins the battle against inflation,” said Marty Green of the mortgage law firm Polunsky Beitel Green. “I expect rates will remain elevated until at least mid-2024.”
Fannie Mae predicts the average rate for a 30-year fixed mortgage will end the year around 7.1%. That’s not significantly lower than where rates are today, but even a difference of a few tenths of a percentage point can add or subtract tens of thousands of dollars over the life of your home loan. The mortgage leader doesn’t expect mortgage rates to return to the low-6% range until mid-2024.
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. The interest helps cover the cost associated with lending money -- and there are multiple factors that 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 the overall demand for loans in your area or nationwide.
What factors determine my mortgage rate?
While the broader economy plays a key role in mortgage rates, there are some key factors under your control that impact your rate:
- Your credit score: Lenders will offer the lowest available rates to borrowers with excellent credit scores, of 740 and above. Lower credit scores are deemed greater risks for the potential of default, so lenders will charge higher 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, while others have an adjustable rate -- which could result in significantly higher payments down the road.
Current mortgage and refinance rates
What are today’s mortgage rates?
As of Sept. 29, the average 30-year fixed mortgage rate is 7.77% with an APR of 7.78%. The average 15-year fixed mortgage rate is 6.91% with an APR of 6.95%. And the average 5/1 adjustable-rate mortgage is 6.64% with an APR of 8.17%, according to Bankrate’s latest survey of the nation’s largest mortgage lenders.
Current mortgage rates
| Product | Interest rate | APR |
|---|---|---|
| 30-year fixed-rate | 7.80% | 7.82% |
| 30-year fixed-rate FHA | 7.02% | 7.95% |
| 30-year fixed-rate VA | 7.19% | 7.31% |
| 30-year fixed-rate jumbo | 7.83% | 7.85% |
| 20-year fixed-rate | 7.73% | 7.75% |
| 15-year fixed-rate | 6.97% | 7.01% |
| 15-year fixed-rate jumbo | 6.91% | 6.93% |
| 5/1 ARM | 6.72% | 8.18% |
| 5/1 ARM jumbo | 6.59% | 8.09% |
| 7/1 ARM | 6.85% | 8.21% |
| 7/1 ARM jumbo | 6.82% | 8.12% |
| 10/1 ARM | 7.25% | 8.19% |
| 30-year fixed-rate refinance | 8.01% | 8.03% |
| 30-year fixed-rate FHA refinance | 7.11% | 8.05% |
| 30-year fixed-rate VA refinance | 7.21% | 7.43% |
| 30-year fixed-rate jumbo refinance | 8.07% | 8.09% |
| 20-year fixed-rate refinance | 7.99% | 8.01% |
| 15-year fixed-rate refinance | 7.09% | 7.13% |
| 15-year fixed-rate jumbo refinance | 7.09% | 7.11% |
| 5/1 ARM refinance | 6.81% | 7.98% |
| 5/1 ARM jumbo refinance | 6.82% | 7.70% |
| 7/1 ARM refinance | 6.85% | 8.16% |
| 7/1 ARM jumbo refinance | 6.81% | 8.06% |
| 10/1 ARM refinance | 7.33% | 8.20% |
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 ‘annual percentage rate’ and what does it mean for mortgages?
The annual percentage rate, or APR, represents the true cost of your loan, and is usually higher than your loan’s interest rate. It includes the interest rate and other costs such as lenders fees or prepaid points. So, while you might be tempted to see an offer for “interest rates as low as 6.5%,” it’s important to look at the APR instead to see how much you’re really paying.
Pros and cons of getting a mortgage
Pros
You’ll build equity in the property instead of paying rent with no ownership stake.
You’ll build your credit by making on-time payments.
You’ll be able to deduct the interest on the mortgage on your annual tax bill.
Cons
You’ll take on a sizable chunk of debt.
You’ll pay more than the list price -- potentially a lot more over the course of a 30-year loan -- due to interest charges.
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 even though the generated interest will be highest at the beginning of the loan 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 of the loan. Ultimately, most borrowers appreciate the convenience of a fixed, predictable monthly payment.
Shopping for mortgage rates
Mortgage lenders often publish online their rates for different mortgage types, which can help you research and narrow down which lenders you apply to for preapproval. But just because a rate is advertised doesn’t mean that’s the rate you’ll get. Shopping around and reaching out to multiple lenders for quotes is an important part of the process. Experts don’t recommend rushing this process.
FAQs
Most conventional loans require a credit score of 620 or higher, but Federal Housing Administration and other loan types may accommodate lenders with scores as low as 500, depending on the lender.
Your credit score isn’t the only factor that impacts your mortgage rate. Lenders will also look at your debt-to-income ratio to assess your level of risk based on the other debts you’re paying back such as student loans, car payment and credit cards. Additionally, your loan-to-value ratio plays a key role in your mortgage rate.
A rate lock means your interest rate won’t change between the offer and the time you actually close on the house. For example, if you lock in a rate at 6.5% today and your lender’s rates climb to 7.25% over the next 30 days, you will still get the lower rate. Rate locks don’t last forever, though. A common rate-lock period is 45 days, so you’re still on a tight timeline. Be sure to ask lenders about rate lock windows and the cost to secure your rate.
Mortgage rates are always moving, and it’s impossible to predict the market. However, most experts predict mortgage rates to remain elevated due to the Federal Reserve’s efforts to fight inflation in the short term. Fannie Mae predicts the average rate for a 30-year fixed mortgage will end the year at 6.7%.
