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 30-year fixed-mortgage rate average is 6.97%, which is a decrease of 5 basis points compared to one week ago. (A basis point is equivalent to 0.01%.) Thirty-year fixed mortgages are the most frequently used 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. Although you’ll pay more interest over time — you’re paying off your loan over a longer timeframe — if you’re looking for a lower monthly payment, a 30-year fixed mortgage may be a good option.
15-year fixed-rate mortgages The average rate for a 15-year, fixed mortgage is 6.18%, which is a decrease of 10 basis points from seven days ago. Compared to a 30-year fixed mortgage, a 15-year fixed mortgage with the same loan value and interest rate will have a bigger monthly payment. However, as long as you’re able to afford the monthly payments, there are several benefits to a 15-year loan. You’ll most likely get a lower interest rate, and you’ll pay less interest in total because you’re paying off your mortgage much quicker.
5/1 adjustable-rate mortgages A 5/1 adjustable-rate mortgage has an average rate of 5.76%, a downtick of 11 basis points from seven days ago. For the first five years, you’ll usually get a lower interest rate with a 5/1 adjustable-rate mortgage compared to a 30-year fixed mortgage. However, changes in the market may cause your interest rate to increase after that time, as detailed in the terms of your loan. For borrowers who plan to sell or refinance their house before the rate changes, an ARM may be a good option. But if that’s not the case, you might be on the hook for a significantly higher interest rate if the market rates shift.
Good news for homebuyers! Mortgage rates have decreased over the last seven days, including the 15-year fixed, 30-year fixed, and 5/1 adjustable-rate mortgages. Although rates remain higher than the pandemic’s record-low levels, they are expected to decrease slightly in 2023. To get the best rate, focus on improving your credit score, saving for a down payment, and comparing rates and fees from multiple lenders. The 30-year fixed mortgage has an average rate of 6.97%, the 15-year fixed has an average rate of 6.18%, and the 5/1 ARM has an average rate of 5.76%.