A handful of benchmark mortgage rates eased over the past seven days, though rates remain high compared to a year ago. Both 15-year fixed and 30-year fixed mortgage rates dropped off. At the same time, average rates for 5/1 adjustable-rate mortgages remained steady.
On the heels of cooling inflation, the Federal Reserve announced on May 3 a 25-basis-point increase to its benchmark short-term interest rate. The Fed’s May meeting marks what could be the last increase we see for a while, as the central bank has signaled it may soon be time to pause rate hikes. Depending on incoming inflation data, the next step would be to hold rates where they are for an extended period to bring inflation down to its 2% target.
As long as inflation continues to trend downward, experts say a pause in rate hikes from the Fed could bring some stability to today’s volatile mortgage rate market.
Mortgages hit a 20-year high in late 2022, but the macroeconomic environment is changing again. Rates dipped significantly in January before climbing back up in February. Throughout March and April, rates fluctuated in the 6% range.
“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.
While rates don’t directly track changes to the federal funds rate, they do respond to inflation. Overall, inflation remains high but has slowly and consistently fallen every month since it peaked in June 2022.
After raising rates dramatically in 2022, the Fed opted for smaller, 25-basis-point rate increases in its first three meetings of 2023. The decision to hike by 0.25% on May 3 suggests that inflation is cooling and the central bank may soon be able to pause its increases. While the central bank is unlikely to cut rates any time soon, positive signaling from the Fed and cooling inflation may ease some of the upward pressure on mortgage rates.
“If inflation keeps coming down, that will be the biggest driver, outside of the Fed, that’s really going to help bring rates down to a better level and improve affordability for home buyers,” says Scott Haymore, head of capital markets and mortgage pricing at TD Bank.
However, mortgage rates remain well above where they were a year ago. Fewer buyers are willing to enter the housing market, driving demand down and causing home prices in some regions to ease, but that’s only part of the home affordability equation.
“Even though home prices in many parts of the country have fallen since the start of the year, high rates make buying prohibitively expensive for many,” says Jacob Channel, senior economist at loan marketplace LendingTree. It’s still difficult for many buyers, particularly those looking for their first home, to afford a monthly payment.
What does this mean for homebuyers this year? Mortgage rates will likely decrease slightly in 2023, although they’re 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 for their situation.
“The most important thing is that they find the right home. The second most important thing is finding the most efficient way to finance it,” says Melissa Cohn, regional vice president of William Raveis Mortgage.
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, 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
For a 30-year, fixed-rate mortgage, the average rate you’ll pay is 6.79%, a decrease of 11 basis points compared to one week 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 often 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 6.15%, a decrease of 7 basis points compared to a week ago. You’ll 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, if you can afford the monthly payments. You’ll usually get a lower interest rate and 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 5.80%, the same rate from seven days ago. With an adjustable-rate mortgage, you’ll usually get a lower interest rate than a 30-year fixed mortgage for the first five years. However, since the rate adjusts with the market rate, you could pay more after that time, as described in the terms of your loan. Because of this, an adjustable-rate mortgage could be a good option if you plan to sell or refinance your house before the rate changes. But if that’s not the case, you might be on the hook for a much higher interest rate if the market rates change.
Mortgage rate trends
Mortgage rates were historically low throughout most of 2020 and 2021 but increased steadily throughout 2022. Now, mortgage rates are roughly twice what they were a year ago, pushed up by persistently high inflation. That high inflation prompted the Fed to raise its target federal funds rate seven times in 2022. By raising rates, the Fed makes it more expensive to borrow money and more appealing to keep money in savings, suppressing demand for goods and services.
Mortgage interest rates don’t move in lockstep with the Fed’s actions in the same way that rates for a home equity line of credit do. But they do respond to inflation. As a result, cooling inflation data and positive signals from the Fed will influence mortgage rate movement more than the most recent 25-basis-point rate hike.
We use information collected by Bankrate to track changes in these daily rates. This table summarizes the average rates offered by lenders across the US:
Current average mortgage interest rates
|Loan type||Interest rate||A week ago||Change|
|30-year fixed rate||6.79%||6.90%||-0.11|
|15-year fixed rate||6.15%||6.22%||-0.07|
|30-year jumbo mortgage rate||6.85%||6.98%||-0.13|
|30-year mortgage refinance rate||6.88%||7.03%||-0.15|
Rates as of May 5, 2023.
How to find personalized mortgage rates
When you are ready to apply for a loan, you can contact a local mortgage broker or search online. Make sure to take into account your current financial situation and your goals when searching for a mortgage.
Specific mortgage interest rates will vary based on credit score, down payment, debt-to-income ratio and loan-to-value ratio. Generally, you want a higher credit score, a higher down payment, a lower DTI and a lower LTV to get a lower interest rate.
Besides the mortgage rate, additional costs, including closing costs, fees, discount points and taxes, might also impact the cost of your home. You should speak with multiple lenders — like local and national banks, credit unions and online lenders — and comparison shop to find the best loan 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 most common mortgage terms are 15 and 30 years, although 10-, 20- and 40-year mortgages also exist. Mortgages are further divided into fixed-rate and adjustable-rate mortgages. For fixed-rate mortgages, interest rates are fixed for the life of the loan. For adjustable-rate mortgages, interest rates are stable for several years (usually five, seven or 10 years). The rate changes annually based on the current interest rate in the market.
When deciding between a fixed-rate and adjustable-rate mortgage, you should consider the length of time you plan to stay in your home. For those planning to stay in a new house long-term, fixed-rate mortgages may be the better option. While adjustable-rate mortgages might offer lower interest rates upfront, fixed-rate mortgages are more stable over time. However, you may get a better deal with an adjustable-rate mortgage if you only plan to keep your home for a few years. The best loan term depends entirely on your situation and goals, so think about what’s important to you when choosing a mortgage.