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Mortgage rates have been flat so far this week as the Federal Reserve prepares to announce another hike in the fed funds rate this afternoon.
Inflation and Fed policy tightening have helped push mortgage rates to 20-year highs, with the average 30-year fixed mortgage rate now above 7%.
But rates could finally peak. Many pundits predict that rates will start falling in 2023, and they might not rise too much this year if inflation starts showing sustained signs of slowing.
But that’s a big “if,” as the Fed has so far struggled to bring prices down. The most recent Personal Consumption Expenditures Price Index, the Fed’s preferred measure of inflation, showed prices rose 6.2% year-on-year in September – still well off. above its target rate of 2%.
The Fed has made it clear that it is committed to bringing inflation down, even if that means pushing the economy into a recession. If the economy goes into a recession, mortgage rates would likely drop, but probably not to the historic lows we saw in 2020 and 2021.
Mortgage rates today
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Mortgage refinance rates 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.
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.
Advantages and Disadvantages of Fixed and Variable Rate Mortgages
Fixed rate mortgages lock in your rate for the life of your loan. Variable rate mortgages lock in your rate for the first few years, then your rate increases or decreases periodically.
ARMs typically start out with lower rates than fixed rate mortgages, but ARM rates can increase after your initial introductory period is over. If you plan to move or refinance before the rate adjusts, an ARM could be a good deal. But keep in mind that a change in circumstances could prevent you from doing these things, so it’s a good idea to consider whether your budget could support a higher monthly payment.
Fixed rate mortgages are a good choice for borrowers looking for stability, as your monthly principal and interest payments won’t change for the life of the loan (although your mortgage payment may increase if your taxes or insurance increases).
But in exchange for this stability, you will take a higher rate. It may seem like a bad deal right now, but if rates go up again in a few years, you might be happy to have a locked-in rate. And if rates tend to drop, you may be able to refinance for a lower rate.
How does an adjustable rate mortgage work?
ARMs begin with an introductory period where your rate will remain fixed for a certain period of time. Once this period has elapsed, it will begin to adjust periodically – usually once a year or once every six months.
How much your rate changes depends on the index used by the ARM and the margin set by the lender. Lenders choose the index used by their ARMs, and this rate can move up or down depending on current market conditions.
Margin is the amount of interest a lender charges on top of the index. You should shop around with several lenders to see which offers the lowest margin.
ARMs also come with limits on how much modification they can make and how high they can go. For example, an ARM can be limited to a 2% increase or decrease each time it adjusts, with a maximum rate of 8%.
Should I get a HELOC? Advantages and disadvantages
If you’re looking to tap into the equity in your home, a home equity line of credit, or HELOC, might be the best way to do it right now. Unlike a cash-out refinance, you won’t have to get a new mortgage with a new interest rate, and you’ll likely get a better rate than with a home equity loan.
But HELOCs don’t always make sense. It is important to consider the pros and cons.
- Only pay interest on what you borrow
- They usually have lower rates than alternatives, including home equity loans, personal loans and credit cards
- If you have a lot of equity, you could potentially borrow more than you could get with a personal loan.
- Rates are variable, which means your monthly payments could increase
- Withdrawing equity from your home can be risky if the value of the property drops or you fail to repay the loan
- The minimum withdrawal amount may be more than you wish to borrow
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