A handful of notable refinance rates continued to trend downward this week. Both 15-year fixed and 30-year fixed refinances saw their average rates trail off. At the same time, the average rate on 10-year fixed refinance also decreased.
Amid its ongoing battle to fight inflation, the Federal Reserve announced a 0.25% hike to its target federal funds rate on May 3. Refinance rates, like mortgage rates, fluctuate daily and could see further movement in response, or they could generally stay the same.
“The market has already built in the expectations for a 25-basis-point hike in May and then no further hikes after that,” says Scott Haymore, head of capital markets and mortgage pricing at TD Bank.
With inflation falling steadily from its peak last summer, the Fed has signaled that the end of the current rate hiking cycle may be in sight. Depending on incoming inflation data, the Fed may hold rates where they are — but not cut them — until inflation reaches its 2% goal.
“Ultimately, more certainty about the Fed’s actions will help to smooth out some of the volatility we have seen with mortgage rates,” says Odeta Kushi, deputy chief economist at First American Financial Corporation.
As the Fed aggressively ratcheted up its federal funds rate in 2022, refinance rates spiked, but we’re seeing signs that rates may be slowly starting to level out as inflation eases.
For the first three meetings of 2023, the Fed has adopted smaller rate increases — 25 basis points compared to the 75- and 50-basis-point increases common last year — as it waits to see the cumulative effects of policy changes on inflation.
Looking at average mortgage rate data for the past year, mortgage rates peaked in late 2022 and have been trending down since then. We’re still far from the record-low refinance rates of 2020 and 2021, but borrowers may see rates fall in 2023.
“With the backdrop of easing inflation pressures, we should see more consistent declines in mortgage rates as the year progresses, particularly if the economy and labor market slow noticeably,” says Greg McBride, CFA and chief financial analyst at Bankrate. (Bankrate, like CNET Money, is owned by Red Ventures.) He expects 30-year fixed mortgage rates to end the year near 5.25%.
Regardless of where rates are headed, homeowners shouldn’t focus on timing the market and instead decide if refinancing makes sense for their financial situation. Refinancing will likely save you money as long as you can get a lower interest rate than your current rate. Do the math to see if it makes sense for your current finances and goals. If you decide to refinance, compare rates, fees, and the annual percentage rate — which shows the total cost of borrowing — from different lenders to find the best deal.
30-year fixed-rate refinance
The average rate for a 30-year fixed refinance loan is currently 6.88%, a decrease of 15 basis points over this time last week. (A basis point is equivalent to 0.01%.) One reason to refinance to a 30-year fixed loan from a shorter loan term is to lower your monthly payment. Because of this, a 30-year refinance can be a good idea if you’re having trouble making your monthly payments. However, be aware that interest rates will typically be higher than a 10- or 15-year refinance, and you’ll pay off your loan at a slower rate.
15-year fixed-rate refinance
The current average interest rate for 15-year refinances is 6.16%, a decrease of 12 basis points compared to one week ago. A 15-year fixed refinance will most likely raise your monthly payment compared to a 30-year loan. On the other hand, you’ll save money on interest, since you’ll pay off the loan sooner. You’ll also typically get lower interest rates compared to a 30-year loan. This can help you save even more in the long run.
10-year fixed-rate refinance
The average 10-year fixed refinance rate right now is 6.23%, a decrease of 15 basis points over last week. You’ll pay more monthly with a 10-year fixed refinance compared to a 15- or 30-year refinance — but you’ll also have a lower interest rate. A 10-year refinance can help you pay off your house much quicker and save on interest. But you should confirm that you can afford a higher monthly payment by evaluating your budget and overall financial situation.
Where rates are headed
At the start of the pandemic, refinance interest rates hit a historic low. But in early 2022, the Fed started hiking interest rates to curb runaway inflation. While the Fed doesn’t directly set mortgage rates, the Fed rate hikes led to an increased cost of borrowing among most consumer loan products, including mortgages and refinances. Mortgage rates hit a 20-year high in late 2022.
Recent data shows that overall inflation has been falling slowly but steadily since it peaked in June 2022, but it remains well above the Fed’s 2% inflation goal. After raising rates by 25 basis points in March, the Fed has indicated (PDF) it plans to slow — but not stop — the pace of its rate hikes throughout 2023. Both factors are likely to contribute to a gradual pull-back of mortgage and refinance rates this year, although consumers shouldn’t expect a sharp drop or a return to pandemic-era lows.
We track refinance rate trends using information collected by Bankrate. Here’s a table with the average refinance rates provided by lenders across the US:
Average refinance interest rates
|Product||Rate||A week ago||Change|
|30-year fixed refi||6.88%||7.03%||-0.15|
|15-year fixed refi||6.16%||6.28%||-0.12|
|10-year fixed refi||6.23%||6.38%||-0.15|
Rates as of May 5, 2023.
How to shop for refinance rates
It’s important to understand that online rates often require specific eligibility conditions. Your interest rate will be influenced by market conditions and your specific credit history, financial profile and application.
A high credit score, a low credit utilization ratio and a history of consistent and on-time payments will help you get the best interest rates. You can get a good feel for average interest rates online, but speak with a mortgage professional to see the specific rates you qualify for. To get the best refinance rates, you’ll first want to make your application as strong as possible. The best way to improve your credit ratings is to get your finances in order, use credit responsibly and monitor your credit regularly. Don’t forget to speak with multiple lenders and shop around.
Refinancing can be a great move if you get a good rate or can pay off your loan sooner — but consider carefully whether it’s the right choice for you.
When should I refinance?
In order for a refinance to make sense, you’ll generally want to get a lower interest rate than your current rate. Aside from interest rates, changing your loan term is another reason to refinance. When deciding whether to refinance, consider other factors besides market interest rates, including how long you plan to stay in your current home, the length of your loan term and the amount of your monthly payment. And don’t forget about fees and closing costs, which can add up.
As interest rates increased throughout 2022, the pool of refinancing applicants contracted. If you bought your house when interest rates were lower than they are today, there might not be a financial benefit in refinancing your mortgage.