Falling mortgage rates have stirred up buyer demand, but home affordability remains a major challenge in today’s housing market.
“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, which are determined by an array of economic factors and specific elements like your credit score and loan type, can vary widely by lender. Comparing offers from multiple lenders will allow you to choose the offer with the best rate and fees for you.
Read more: Mortgage Forecast for November 2023: Cooling Inflation is Encouraging for Mortgage Rates
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. 10, the average 30-year fixed mortgage rate is 7.87% with an APR of 7.89%. The average 15-year fixed mortgage rate is 7.14% with an APR of 7.17%. And the average 5/1 adjustable-rate mortgage is 6.97% with an APR of 8.07%, according to Bankrate’s latest survey of the nation’s largest mortgage lenders.
Current mortgage rates
| Product | Interest rate | APR |
|---|---|---|
| 30-year fixed-rate | 7.69% | 7.71% |
| 30-year fixed-rate FHA | 6.56% | 7.47% |
| 30-year fixed-rate VA | 6.68% | 6.79% |
| 30-year fixed-rate jumbo | 7.76% | 7.77% |
| 20-year fixed-rate | 7.50% | 7.52% |
| 15-year fixed-rate | 6.95% | 6.98% |
| 15-year fixed-rate jumbo | 7.00% | 7.02% |
| 5/1 ARM | 6.82% | 8.02% |
| 5/1 ARM jumbo | 6.72% | 7.92% |
| 7/1 ARM | 7.13% | 8.10% |
| 7/1 ARM jumbo | 6.99% | 7.95% |
| 10/1 ARM | 7.60% | 8.10% |
| 30-year fixed-rate refinance | 7.71% | 7.73% |
| 30-year fixed-rate FHA refinance | 6.62% | 7.55% |
| 30-year fixed-rate VA refinance | 6.72% | 6.92% |
| 30-year fixed-rate jumbo refinance | 7.79% | 7.80% |
| 20-year fixed-rate refinance | 7.65% | 7.67% |
| 15-year fixed-rate refinance | 7.00% | 7.02% |
| 15-year fixed-rate jumbo refinance | 7.04% | 7.05% |
| 5/1 ARM refinance | 6.74% | 7.86% |
| 5/1 ARM jumbo refinance | 6.84% | 7.65% |
| 7/1 ARM refinance | 7.07% | 8.04% |
| 7/1 ARM jumbo refinance | 6.90% | 7.90% |
| 10/1 ARM refinance | 7.66% | 8.10% |
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
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, 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.
FAQs
Most conventional loans require a credit score of 620 or higher, but Federal Housing Administration and other loan types may accommodate borrowers 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 payments 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 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’ll lower rate. 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 changing, and it’s impossible to predict the market. However, most experts think mortgage rates will remain elevated in the short term due to the Federal Reserve’s efforts to fight inflation. Fannie Mae predicts the average rate for a 30-year fixed mortgage will end the year at 7.3%.
