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Ahead of today’s Federal Reserve meeting, a number of benchmark mortgage rates inched higher. The average 15-year fixed and 30-year fixed mortgage rates both climbed higher. For variable rates, the 5/1 adjustable-rate mortgage also ticked up.
The Federal Reserve announced a 25-basis point increase to its benchmark short-term interest rate on May 3. Today’s increase will likely be the last we see from the central bank for the near future. The Fed has signaled that ongoing rate increases will no longer be necessary to reach its 2% target for inflation. Instead, the Fed will pause and hold rates where they are for an extended period of time.
“Unless something major changes — like inflation suddenly getting much worse — this will likely be the last hike for a while,” said Jacob Channel, senior economist at loan marketplace LendingTree.
Today’s rate hike could have an impact on mortgage rates, but experts say the markets may have already factored it into rates.
“A 25-basis point hike may be partially baked into mortgage rates,” said Odeta Kushi, deputy chief economist at First American Financial Corporation. But, incoming inflation data could sway mortgage rates in either direction, Kushi said.
Mortgages hit a 20-year high in late 2022, and the macroeconomic environment is now changing again. Rates dipped significantly in January of this year before climbing back up in February. While rates don’t directly track changes to the federal funds rate, they do respond to inflation. Overall, inflation remains high but has been slowly but consistently falling 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. 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,” said Scott Haymore, head of capital markets and mortgage pricing at TD Bank.
Although mortgage rates have dipped slightly from their December 2022 peak, they are still high. Fewer buyers are willing to jump into the housing market, driving demand down and causing home prices to ease in some regions — 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,” Channel said. It’s still difficult for many buyers, particularly those looking for their first home, to afford a monthly mortgage 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. But expect rate volatility to continue for some time. Greg McBride, chief financial analyst at Bankrate, CNET’s sister site, expects rates to fall more consistently as the year progresses. “Thirty-year fixed mortgage rates will end the year near 5.25%,” said McBride.
Rather than worrying about market mortgage rates, homebuyers should focus on what they can control: Getting the best rate possible for their situation.
“The most important thing is that they find the right home. The second most important thing is obviously to find the most efficient way to finance it,” said Melissa Cohn, regional vice president of William Raveis Mortgages.
Take steps to improve your credit score and save for a down payment to increase your odds of qualifying for the lowest rate available. And always compare 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 6.83%, which is an increase of one basis point from 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 mortgage will typically have a greater interest rate than a 15-year fixed rate mortgage — but also a lower monthly payment. 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 6.22%, which is an increase of one basis point from the same time last week. Compared to a 30-year fixed mortgage, a 15-year fixed mortgage with the same loan value and interest rate will have a higher monthly payment. However, as long as you can afford the monthly payments, there are several benefits to a 15-year loan. These include typically 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 ARM has an average rate of 5.81%, an uptick of one basis point compared to last week. You’ll typically get a lower interest rate (compared to a 30-year fixed mortgage) with a 5/1 ARM in the first five years of the mortgage. But 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. Because of this, an adjustable-rate mortgage may be a good option if you plan to sell or refinance your house before the rate changes. Otherwise, changes in the market mean your interest rate may be significantly higher once the rate adjusts.
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, say, 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 rates collected by Bankrate to track daily mortgage rate trends. This table summarizes the average rates offered by lenders nationwide:
Current average mortgage interest rates
|Loan type||Interest rate||A week ago||Change|
|30-year fixed rate||6.83%||6.82%||+0.01|
|15-year fixed rate||6.22%||6.21%||+0.01|
|30-year jumbo mortgage rate||6.89%||6.84%||+0.05|
|30-year mortgage refinance rate||6.96%||6.99%||-0.03|
Rates as of May 3, 2023
How to find the best mortgage rates
To find a personalized mortgage rate, meet with your local mortgage broker or use an online mortgage service. When shopping around for home mortgage rates, think about your goals and current financial situation.
A range of factors — including your down payment, credit score, loan-to-value ratio and debt-to-income ratio — will all affect the interest rate on your mortgage. Generally, you want a higher credit score, a larger down payment, a lower DTI and a lower LTV to get a lower interest rate.
The interest rate isn’t the only factor that affects the cost of your home. Be sure to also consider other costs such as fees, closing costs, taxes and discount points. Make sure you speak with several different lenders — including local and national banks, credit unions and online lenders — and comparison shop to find the best mortgage for you.
What’s the best loan term?
One important thing to consider when choosing a mortgage is the loan term, or payment schedule. The loan terms most commonly offered are 15 years and 30 years, although you can also find 10-, 20- and 40-year mortgages. Another important distinction is between fixed-rate and adjustable-rate mortgages. The interest rates in a fixed-rate mortgage are set for the duration of the loan. Unlike a fixed-rate mortgage, the interest rates for an adjustable-rate mortgage are only the same for a certain amount of time (usually five, seven or 10 years). After that, the rate fluctuates annually based on the current interest rate in the market.
One factor to think about when choosing between a fixed-rate and adjustable-rate mortgage is the length of time you plan on living in your house. Fixed-rate mortgages might be a better fit for those who plan on living in a home for a while. While adjustable-rate mortgages might have lower interest rates upfront, fixed-rate mortgages are more stable over time. However, you might get a better deal with an adjustable-rate mortgage if you only plan to keep your home for a few years. There is no best loan term as a general rule; it all depends on your goals and your current financial situation. It’s important to do your research and think about what’s most important to you when choosing a mortgage.