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Mortgage rates have risen rapidly in recent months, although they have been more volatile recently. As the Federal Reserve braces for another hike in the federal funds rate on Wednesday, mortgage rates remain high.
The Fed quickly raised rates in an attempt to rein in inflation, which has so far remained stubbornly high. Another 75 basis point hike is likely this week, although the central bank may opt for a smaller 50 basis point hike at its December meeting, the last of 2022.
As the Fed has raised the federal funds rate, mortgage rates have also risen, although borrowers may get some relief in 2023. Many forecasts predict that rates will start falling next year. That means those in the market to buy right now could have a good opportunity to refinance over the next two years.
“Finding the perfect home can be difficult, but if you find ‘the one’, consider a lower interest rate a short-term problem,” said Dan Dadoun, president of Silverton Mortgage. “You can try waiting out the market and refinance if rates drop again, or you can take advantage of other innovative loan programs to buy today.”
Dadoun advises those looking to buy today to consider adjustable rate mortgages to keep their payments low.
Today’s Mortgage Rates
| Type of mortgage | Average rate today |
Today’s Refinance Rates
| Type of mortgage | Average rate today |
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Use our free mortgage calculator to see how today’s mortgage rates will affect your monthly and long-term payments.
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$1,161
Your estimated monthly payment
- pay one 25% a higher down payment would save you $8,916.08 on interest charges
- Lower the interest rate by 1% would save you $51,562.03
- Pay an extra fee $500 each month would reduce the term of the loan by 146 month
By plugging in different terms and interest rates, you’ll see how your monthly payment might change.
Projection of mortgage rates for 2023
Mortgage rates started to recover from historic lows in the second half of 2021 and have risen more than three percentage points so far in 2022. They will likely remain near current levels for the remainder of 2022.
But many forecasts predict that rates will start falling next year. In their latest forecast, Fannie Mae researchers predicted that rates are currently peaking and that 30-year fixed rates will drop to 6.2% by the end of 2023.
The Mortgage Bankers Association also noted that a recession in the first half of 2023 could cause rates to drop even faster. He currently estimates that there is a 50% chance that a mild recession will materialize next year.
The decline in mortgage rates in 2023 depends on the Federal Reserve’s ability to control inflation.
Over the past 12 months, the consumer price index has increased by 8.2%. This is only a slight slowdown from the previous month’s numbers, meaning the Fed will likely need to continue to aggressively raise fed funds rates to bring prices down significantly.
As inflation slows, mortgage rates will likely start to come down as well. If the Fed acts too aggressively and engineer a recession, mortgage rates could fall further than currently forecast. But rates are unlikely to fall to the historic lows that borrowers have enjoyed over the past two years.
When will real estate prices go down?
House prices are starting to drop, but we probably won’t see huge drops, even in a recession.
The S&P Case-Shiller Home Price Index shows that prices are still up year-over-year, although they fell on a monthly basis in July. Fannie Mae researchers expect prices to fall 1.5% in 2023, while the MBA expects prices to rise 2.8% in 2023 and 2.1% in 2024.
Skyrocketing mortgage rates have pushed many promising buyers out of the market, slowing demand for home purchases and putting downward pressure on home prices. But rates could start falling next year, taking some of that pressure off. The current supply of homes is also historically low, which will likely prevent prices from falling too far.
What happens to house prices in a recession?
House prices generally fall during a recession, but not always. When this happens, it’s usually because fewer people can afford to buy homes and weak demand forces sellers to lower their prices.
How much mortgage can I afford?
A mortgage calculator can help you determine how much you can afford to borrow. Play around with different house prices and down payment amounts to see how much your monthly payment might be, and think about how that fits into your overall budget.
As a general rule, experts recommend spending no more than 28% of your gross monthly income on housing expenses. This means that your total monthly mortgage payment, including taxes and insurance, should not exceed 28% of your pre-tax monthly income.
The lower your rate, the more you’ll be able to borrow, so shop around and get pre-approved with multiple mortgage lenders to see who can offer you the best rate. But remember not to borrow more than your budget can comfortably support.
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