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Some closely followed mortgage rates crept higher over the last seven days. The average 15-year fixed and 30-year fixed mortgage rates both increased. At the same time, average rates for 5/1 adjustable-rate mortgages also were raised.
As inflation surged in 2022, so too did mortgage rates. To rein in price growth, the Federal Reserve began bumping up its federal funds rate — a short term interest rate that determines what banks charge each other to borrow money. By making it more expensive to borrow, the central bank’s goal is to reduce prices by curtailing consumer spending.
During its July 26 meeting, the Fed initiated a 25-basis point (or 0.25%) hike to its federal funds rate, marking its 11th increase in the current rate hiking cycle. The most recent increase could have an impact on mortgage rates, but experts say the markets may have already factored it into rates.
“Mortgage rates will continue to ebb and flow week to week, but ultimately, I think rates will stick to that 6% to 7% range we’re seeing now,” said Jacob Channel, senior economist at loan marketplace LendingTree.
The Fed doesn’t set mortgage rates directly, but it does play an influential role. Mortgage rates move around on a daily basis in response to a range of economic factors, including inflation, employment and the broader outlook for the economy. A lower inflation rate is good news for mortgage rates, but the potential for additional hikes from the central bank this year will keep upward pressure on already high rates.
Rather than worrying about mortgage rates, though, homebuyers should focus on what they can control: getting the best rate they can for their financial situation.
To increase your odds at qualifying for the lowest rate available, take the steps necessary to improve your credit score and to save for a down payment. 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 make an apples-to-apples comparison among lenders.
30-year fixed-rate mortgages
For a 30-year, fixed-rate mortgage, the average rate you’ll pay is 7.42%, which is an increase of 16 basis points from one week ago. (A basis point is equivalent to 0.01%.) The most common loan term is a 30-year fixed mortgage. 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 6.63%, which is an increase of 8 basis points 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 bigger monthly payment. But a 15-year loan will usually be the better deal, as long as you can afford the monthly payments. 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 adjustable-rate mortgage has an average rate of 6.37%, an addition of 6 basis points from the same time last week. With an ARM mortgage, you’ll usually get a lower interest rate than a 30-year fixed mortgage for the first five years. But shifts 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 could be a good option. If not, changes in the market may significantly increase your interest rate.
Mortgage rate trends
Mortgage rates were historically low throughout most of 2020 and 2021, but increased steadily throughout 2022 as the Federal Reserve began aggressively hiking interest rates. Now, mortgage rates are well above where they were a year ago. What does this mean for homebuyers this year?
“Mortgage rates have hovered in the 6% to 7% range for the past 10 months. Though home prices have softened slightly nationally, the still-high cost of borrowing means hopeful home buyers have felt little relief,” said Hannah Jones, economic research analyst at Realtor.com.
However, if inflation continues to decline and the Fed is able to hold rates where they are and eventually cut them, mortgage rates are likely to decrease slightly in 2023. However, they’re highly unlikely to return to the rock-bottom levels of just a few years ago.
The most recent housing forecast from Fannie Mae calls for the average 30-year fixed mortgage rate to close out the year at around 6.6%.
“Mortgage rates have been volatile for some time now and while they could eventually start trending down over the next six months to a year as inflation growth continues to cool, their path is probably going to be bumpy,” Channel said.
We use data collected by Bankrate to track changes in these daily rates. This table summarizes the average rates offered by lenders nationwide:
Today’s mortgage interest rates
| Loan term | Today’s Rate | Last week | Change |
|---|---|---|---|
| 30-year mortgage rate | 7.42% | 7.26% | +0.16 |
| 15-year fixed rate | 6.63% | 6.55% | +0.08 |
| 30-year jumbo mortgage rate | 7.45% | 7.30% | +0.15 |
| 30-year mortgage refinance rate | 7.46% | 7.39% | +0.07 |
Rates as of Aug. 8, 2023.
How to shop for the best mortgage rate
When you are ready to apply for a loan, you can reach out to a local mortgage broker or search online. In order to find the best home mortgage, you’ll need to take into account your goals and current finances.
A range of factors — including your down payment, credit score, loan-to-value ratio and debt-to-income ratio — will all affect your mortgage interest rate. Generally, you want a higher credit score, a higher down payment, a lower DTI and a lower LTV to get a lower interest rate.
Aside from the interest rate, additional costs including closing costs, fees, discount points and taxes might also affect the cost of your house. Make sure you speak with multiple lenders — for example, local and national banks, credit unions and online lenders — and comparison shop to find the best mortgage loan for you.
How does the loan term impact my mortgage?
One important factor to consider when choosing a mortgage is the loan term, or payment schedule. The mortgage 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. For adjustable-rate mortgages, interest rates are the same for a certain number of years (commonly five, seven or 10 years), then the rate changes annually based on the market interest rate.
When choosing between a fixed-rate and adjustable-rate mortgage, you should think about the length of time you plan to live in your home. Fixed-rate mortgages might be a better fit for people who plan on staying in a home for a while. While adjustable-rate mortgages might have lower interest rates upfront, fixed-rate mortgages are more stable in the long term. However, you might get a better deal with an adjustable-rate mortgage if you only intend to keep your house for a couple years. The best loan term depends on your own situation and goals, so be sure to think about what’s important to you when choosing a mortgage.
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