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Mortgage rates decreased again today and remain the lowest they’ve been in over a month.
Rates have been trending down over the past few days following last week’s news that inflation slowed in October. As price growth continues to come down, mortgage rates likely will, too.
Borrowers are starting to respond somewhat to lower rates — in the Mortgage Bankers Association’s latest Weekly Mortgage Applications Survey, mortgage applications increased 2.7% from the week prior.
“Mortgage rates decreased last week as signs of slower inflation pushed Treasury yields lower,” Joel Kan, MBA’s vice president and deputy chief economist, said in the MBA’s press release. “The 30-year fixed rate saw the largest single-week decline since July 2022, dropping to 6.9%. Application activity, adjusted to account for the Veterans Day holiday, increased in response to the drop in rates – driven by a 4% rise in home purchase applications.”
The past few months have been tough for the housing market, as many buyers have been priced out due to decades-high mortgage rates. But if rates trend down in 2023, interest in homebuying should start to pick back up again.
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30-year fixed mortgage rates
The current average 30-year fixed mortgage rate is 7.08%, according to Freddie Mac. This is an increase from the previous week.
The 30-year fixed-rate mortgage is the most common type of home loan. With this type of mortgage, you’ll pay back what you borrowed over 30 years, and your interest rate won’t change for the life of the loan.
The lengthy 30-year term allows you to spread out your payments over a long period of time, meaning you can keep your monthly payments lower and more manageable. The trade-off is that you’ll have a higher rate than you would with shorter terms or adjustable rates.
15-year fixed mortgage rates
The average 15-year fixed mortgage rate is 6.38%, an increase from the prior week, according to Freddie Mac data. The last time this rate was above 6% was in 2008.
If you want the predictability that comes with a fixed rate but are looking to spend less on interest over the life of your loan, a 15-year fixed-rate mortgage might be a good fit for you. Because these terms are shorter and have lower rates than 30-year fixed-rate mortgages, you could potentially save tens of thousands of dollars in interest. However, you’ll have a higher monthly payment than you would with a longer term.
5/1 adjustable mortgage rates
The average 5/1 adjustable mortgage rate is 6.06%, an increase from the previous week. This is also the first time this rate has surpassed 6% since 2008.
Adjustable rate mortgages can look very attractive to borrowers when rates are high, because the rates on these mortgages are typically lower than fixed mortgage rates. A 5/1 ARM is a 30-year mortgage. For the first five years, you’ll have a fixed rate. After that, your rate will adjust once per year. If rates are higher when your rate adjusts, you’ll have a higher monthly payment than what you started with.
If you’re considering an ARM, make sure you understand how much your rate could go up each time it adjusts and how much it could ultimately increase over the life of the loan.
How do Fed rate hikes affect mortgages?
The Federal Reserve has been increasing the federal funds rate this year to try to slow economic growth and get inflation under control. So far, inflation has slowed somewhat, but it’s still well above the Fed’s 2% target rate.
Mortgage rates aren’t directly impacted by changes to the federal funds rate, but they often trend up or down ahead of Fed policy moves. This is because mortgage rates change based on investor demand for mortgage-backed securities, and this demand is often impacted by how investors expect Fed hikes to affect the broader economy.
As inflation starts to come down, mortgage rates should, too. But the Fed has indicated that it’s watching for sustained signs of slowing inflation, and it’s not going to stop hiking rates any time soon — though it may start opting for smaller hikes at its next few meetings.
Will mortgage rates go up in 2022?
Mortgage rates have increased dramatically so far in 2022, but there are signs that they may finally have peaked.
In October, the Consumer Price Index rose 7.7% year-over-year, a significant slowdown compared to the previous month. This is good news for mortgage borrowers and the broader economy. As inflation comes down, mortgage rates likely will, too.
But just one month of promising price data isn’t enough to say for certain that the worst of inflation is behind us. If price growth proves to be stubborn in the coming months and the Fed decides it needs to act more aggressively than it currently plans to, mortgage rates could start trending up again.
Are HELOCs a good idea right now?
Many homeowners gained a lot of equity over that past couple of years as home prices increased at an unprecedented rate. But because rates are so high now, tapping into that equity can be expensive.
For homeowners looking to leverage their home’s value to cover a big purchase — such as a home renovation — a home equity line of credit (HELOC) may still be a good option.
A HELOC is a line of credit that lets you borrow against the equity in your home. It works similarly to a credit card in that you borrow what you need rather than getting the full amount you’re borrowing in a lump sum.
Depending on your finances and the type of HELOC you get, you may be able to get a better rate with a HELOC than you would with a home equity loan or a cash-out refinance. Just keep in mind that HELOC rates are variable, so if rates start to trend up further, yours will likely increase, as well.