A couple of important mortgage rates crept upward over the last seven days. The average 15-year fixed and 30-year fixed mortgage rates both climbed higher. The average rate of the most common type of variable-rate mortgage, the 5/1 adjustable-rate mortgage, also rose.
After nearly a year of rising mortgage rates, borrowers finally saw some relief late last year. Rates have declined since they hit their peak in late 2022, though current rates remain nearly double what they were during the record-low rate environment of the pandemic.
Inflation, and the series of rate hikes the Federal Reserve implemented in 2022 in an attempt to curb it, contributed in part to the rise in mortgage rates. Mortgage rates hit a 20-year high in late 2022, but now the macroeconomic environment is changing again.
Overall inflation remains high but has been slowly but consistently falling every month since it peaked in June 2022. The Fed's decision to raise the federal funds rate by 0.25% on Feb. 1 after its latest meeting -- the smallest increase since March 2022 -- suggests that inflation may be cooling and the central bank may be able to ease up on its rate hikes.
What does this mean for homebuyers this year? Mortgage rates are likely to decrease slightly in 2023, although they're highly unlikely to return to the rock-bottom levels of 2020 and 2021. However, rate volatility may continue for some time. "Expect mortgage rates to yo-yo up and down in the first half of the year, at least until there is a consensus about when the Fed will conclude raising interest rates," says Greg McBride, CFA and chief financial analyst at Bankrate. (Like CNET Money, Bankrate is owned by Red Ventures.) McBride expects rates to fall more consistently as the year progresses. "Thirty-year fixed mortgage rates will end the year near 5.25%," he predicts.
Rather than worrying about market mortgage rates, homebuyers should focus on what they can control: getting the best rate they can for their situation. Take steps to improve your credit score and save for a down payment to increase your odds of qualifying for the lowest rate available. Also, be sure to compare the rates and fees from multiple lenders to get the best deal. Looking at the annual percentage rate, or APR, will show you the total cost of borrowing and help you compare apples to apples.
30-year fixed-rate mortgages
The average 30-year fixed mortgage interest rate is 7.08%, which is an increase of 6 basis points as of seven days ago. (A basis point is equivalent to 0.01%.) Thirty-year fixed mortgages are the most common loan term. A 30-year fixed-rate mortgage will usually have a lower monthly payment than a 15-year one -- but typically a higher interest rate. You won't be able to pay off your house as quickly and you'll pay more interest over time, but a 30-year fixed mortgage is a good option if you're looking to minimize your monthly payment.
15-year fixed-rate mortgages
The average rate for a 15-year, fixed mortgage is 6.33%, which is an increase of 3 basis points from seven days ago. You'll definitely have a higher monthly payment with a 15-year fixed mortgage compared to a 30-year fixed mortgage, even if the interest rate and loan amount are the same. But a 15-year loan will usually be the better deal, as long as you're able to afford the monthly payments. These include usually being able to get a lower interest rate, paying off your mortgage sooner, and paying less total interest in the long run.
5/1 adjustable-rate mortgages
A 5/1 adjustable-rate mortgage has an average rate of 5.84%, an uptick of 13 basis points from seven days ago. You'll typically get a lower interest rate (compared to a 30-year fixed mortgage) with a 5/1 adjustable-rate mortgage in the first five years of the mortgage. However, since the rate changes with the market rate, you may end up paying more after that time, as described in the terms of your loan. If you plan to sell or refinance your house before the rate changes, an ARM could make sense for you. Otherwise, shifts in the market mean your interest rate could be much higher once the rate adjusts.
Mortgage rate trends
Mortgage rates were historically low throughout most of 2020 and 2021 but increased steadily throughout 2022. The Federal Reserve raised the target federal funds rate -- which influences the cost of most consumer loans, including mortgages -- seven times in 2022 in an attempt to curb record-high inflation. Though the Fed doesn't directly control mortgage rates, higher inflation and a higher federal funds rate tend to lead to higher mortgage rates.
The Fed's recent 0.25% increase -- smaller than its six previous increases of 0.75% or 0.5% -- represents a shift in the Fed's stance and suggests that the central bank might be less aggressive in its rate hikes in 2023 if inflation continues to come down. But inflation is still far from the Fed's 2% target range and Fed officials have stated repeatedly (PDF) that additional rate hikes -- albeit smaller ones -- will be necessary. All said, while we may see mortgage rates pull back gradually this year, borrowers shouldn't expect a sharp drop or a return to pandemic lows.
We use information collected by Bankrate, which is owned by the same parent company as CNET, to track daily mortgage rate trends. This table summarizes the average rates offered by lenders nationwide:
Average mortgage interest rates
|30-year jumbo mortgage rate||7.13%||7.04%||+0.09|
|30-year mortgage refinance rate||7.17%||7.12%||+0.05|
Rates as of March 6, 2023.
How to find the best mortgage rates
To find a personalized mortgage rate, talk to your local mortgage broker or use an online mortgage service. Make sure to consider your current finances and your goals when searching for a mortgage.
Things that affect the mortgage rate you might get include: your credit score, down payment, loan-to-value ratio and your debt-to-income ratio. Having a good credit score, a larger down payment, a low DTI, a low LTV or any combination of those factors can help you get a lower interest rate.
Beyond the mortgage rate, factors including closing costs, fees, discount points and taxes might also affect the cost of your home. Be sure to comparison shop with multiple lenders -- including credit unions and online lenders in addition to local and national banks -- in order to get a mortgage loan that's best for you.
What's the best loan term?
One important thing you should consider when choosing a mortgage is the loan term, or payment schedule. The mortgage terms most commonly offered are 15 years and 30 years, although you can also find 10-, 20- and 40-year mortgages. Mortgages are further divided into fixed-rate and adjustable-rate mortgages. The interest rates in a fixed-rate mortgage are fixed for the duration of the loan. For adjustable-rate mortgages, interest rates are the same for a certain number of years (commonly five, seven or 10 years), then the rate changes annually based on the market rate.
One factor to take into consideration when choosing between a fixed-rate and adjustable-rate mortgage is how long you plan on staying in your house. For people who plan on staying long-term in a new house, fixed-rate mortgages may be the better option. While adjustable-rate mortgages may offer lower interest rates upfront, fixed-rate mortgages are more stable over time. However, you could get a better deal with an adjustable-rate mortgage if you only have plans to keep your home for a couple years. There is no best loan term as a rule of thumb; it all depends on your goals and your current financial situation. Be sure to do your research and think about your own priorities when choosing a mortgage.