High mortgage rates take a toll on the housing market and homebuyers’ purchasing power.
The average rate for a 30-year fixed mortgage was 7.42% last week, according to CNET’s sister site Bankrate. Mortgage rates surged past 7% in August and have mostly hovered in that range since then.
Mortgage rates can vary widely across lenders. It’s important to shop around and compare multiple loan offers to find one that fits your financial needs and offers you a competitive rate.
Read more: Mortgage Rates Are Above 7%. Will the Fed’s Rate Pause Change That for September 2023?
What to know first
In March 2022, the Federal Reserve 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. Today’s prospective homebuyers are facing rates well above 7%, which makes it more difficult to afford to purchase a house.
While inflation has come down from last year’s record levels, it’s still too high for comfort. The Fed has an annual 2% target rate for inflation, and the most recent Consumer Price Index shows prices growing 3.7% annually in August.
At its September meeting, the Fed opted to hold off on another rate hike. Depending on how the economy is faring though, the Fed may still implement an additional rate hike in 2023. What does that mean for mortgage rates?
If the Fed can hold rates steady and eventually start to make cuts sometimes in the next year, mortgage rates should see some relief.
Fannie Mae predicts the average rate for a 30-year fixed mortgage will come down to 7.1% by the end of the year. That’s nowhere close to the sub-6% rates many prospective buyers were hoping for, but even a difference of a few tenths of a percentage points can add or subtract tens of thousands of dollars over the life of your home loan.
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. 21, the average 30-year fixed mortgage rate is 7.59% with an APR of 7.61%. The average 15-year fixed mortgage rate is 6.82% with an APR of 6.86%. And the average 5/1 adjustable-rate mortgage is 6.51% with an APR of 8.14%, according to Bankrate’s latest survey of the nation’s largest mortgage lenders.
Current mortgage rates
| Product | Interest rate | APR |
|---|---|---|
| 30-year fixed-rate | 7.75% | 7.76% |
| 30-year fixed-rate FHA | 6.85% | 7.79% |
| 30-year fixed-rate VA | 7.10% | 7.21% |
| 30-year fixed-rate jumbo | 7.78% | 7.79% |
| 20-year fixed-rate | 7.73% | 7.75% |
| 15-year fixed-rate | 6.89% | 6.92% |
| 15-year fixed-rate jumbo | 6.87% | 6.89% |
| 5/1 ARM | 6.61% | 8.16% |
| 5/1 ARM jumbo | 6.67% | 8.10% |
| 7/1 ARM | 6.81% | 8.19% |
| 7/1 ARM jumbo | 6.93% | 8.12% |
| 10/1 ARM | 7.15% | 8.16% |
| 30-year fixed-rate refinance | 7.91% | 7.93% |
| 30-year fixed-rate FHA refinance | 6.90% | 7.85% |
| 30-year fixed-rate VA refinance | 7.07% | 7.28% |
| 30-year fixed-rate jumbo refinance | 7.98% | 8.00% |
| 20-year fixed-rate refinance | 7.80% | 7.82% |
| 15-year fixed-rate refinance | 7.00% | 7.03% |
| 15-year fixed-rate jumbo refinance | 7.02% | 7.04% |
| 5/1 ARM refinance | 6.66% | 8.01% |
| 5/1 ARM jumbo refinance | 6.79% | 7.83% |
| 7/1 ARM refinance | 6.82% | 8.16% |
| 7/1 ARM jumbo refinance | 6.95% | 8.09% |
| 10/1 ARM refinance | 7.21% | 8.15% |
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%.
