What a good interest rate on a mortgage right now

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Mortgage rates seemed on a relentless climb this year, now sitting at double what they were at the start of the year. But the latest rate drops the past few weeks have economists questioning whether this indicates a steady decline in 2023—or this is the calm before another storm of rate hikes.

The average 30-year, fixed-rate mortgage was 6.58% for the week ending November 23. It was the second week of declines after the rate reached as high as 7.08% November 10.

While some experts say they’re hopeful that interest rates won’t rise further this year, others say the increases will likely continue into early 2023 until inflation is under control.

Mortgage Rate Predictions Going Into 2023

Rates for home loans are caught in a tug-of-war between high inflation and the Federal Reserve’s actions to restrain inflation, which have indirectly pushed rates higher.

The Federal Reserve (Fed) began hiking its benchmark interest rate in March, totaling six increases by November. The Fed has since signaled that it plans to raise interest rates once more this year at its next meeting in mid-December.

There’s a widely held expectation that rates will likely continue to undergo some amount of upward pressure in the coming months—or at least until inflation is moderated.

“While the Fed indicated at this month’s meeting that it will consider changes in inflation metrics in its rate setting, it also highlighted that it does not expect to back off its hawkish stance on inflation until it sees prices running closer to the desired target of 2%,” George Ratiu, Realtor.com’s director of economic research, said in an emailed statement.

While some housing experts say mortgage rates have likely reached their peak in the wake of the latest rate declines, they remain cautious given the extreme fluctuations and economic uncertainty the past year.

“[W]ith inflation still north of 7% and the Fed committed to keep increasing the funds rate over the next few months, the mortgage market is not out of the woods,” Ratiu said. “We may still see rates rebound back above 7% before the end of the year.”

Here’s how other experts predict market conditions will affect the 30-year, fixed-rate mortgage in the coming months:

• Compass U.S. region president, Neda Navab: There have been signals that mortgage interest rates may be at or near their peak, given recent encouraging news around inflation and a corresponding drop in the U.S. Treasury yields that help set mortgage rates. A sustained drop could push mortgage rates into the 5% range late in the second quarter or in the second half of 2023, but that’s definitely not guaranteed.
• HSH.com mortgage website vice president, Keith Gumbinger: “At this point, a peak for rates seems likely to come earlier in the year and flatten/turn downward later, and the 30-year FRM (fixed-rate mortgage) will probably run in a 6.5% to 7.5% range for the year.”
• ATTOM executive vice president of market intelligence, Rick Sharga: “Assuming that Fed actions this year show progress in slowing down inflation, the Fed can begin to back off its rate increases, and mortgage rates can begin to come back down as well—but much more slowly than they went up this year. In a best-case scenario, we may see rates for 30-year mortgages somewhere between 5.5% to 6% by the end of 2023.”
• Zillow Senior Economist Jeff Tucker: “If inflation convincingly cools down, and the Fed subsequently stops tightening monetary policy, we could see rates begin to ease back down. The best bet is that we continue to see mortgage rates in the ballpark of current levels, perhaps from 6.5% to 7.5%.”
• Mortgage Bankers Association (MBA): An average of 5.5% at the end of 2022 and 5.4% at the end of 2023. “We expect significant volatility in rates in the near term due to quantitative tightening by the Fed and other central banks, and as markets grapple with significant geopolitical, economic and monetary policy uncertainties.”
• National Association of Realtors (NAR) Chief Economist Lawrence Yun: “The new normal for mortgage rates looks to be near 7% for the 30-year fixed rate. A better rate of 6% will be available to those willing to go with a five-year ARM.”
• Freddie Mac: Forecasts rates dropping from an average of 6.8% in the fourth quarter of 2022 to 6.2% in the fourth quarter of 2023.

Is There Still Time To Refinance?

Americans watch mortgage rates closely, and any time rates pull back even the slightest amount, more people apply for mortgages. With rates still substantially higher than a year ago, however, applications remain stuck near the lowest level in more than two decades, according to MBA data.

While refinancing options can lead to a lower monthly payment, not all of the options yield less interest over the life of the loan. For example, refinancing from a 5% mortgage with 26 years left on it to a 4% rate, but for 30 years, will cause you to pay more than $13,000 in additional interest.

Before you start shopping around for a lender, you can find out how much you could save by using a mortgage refinancing calculator.

You’ll also want to consider how long you plan on staying in your home as the closing costs can eat up your savings if you sell shortly after refinancing. The closing costs to refinance run between 2% to 5% of the loan amount, depending on the lender. So you should plan on keeping your home long enough to cover those costs and realize the savings from refinancing at a lower rate.

Keep in mind that the rate you qualify for also depends on other factors such as your credit score, debt-to-income (DTI) ratio, loan-to-value (LTV) ratio and proof of steady income.

Current Mortgage Rate Trends

The average mortgage rate for a 30-year fixed is 6.81%, more than double its 3.22% level at the start of the year.

The average cost of a 15-year, fixed-rate mortgage has also surged to 6.06%, compared to 2.43% in early January.

In the current environment, ARMs might be more affordable than those with fixed rates. The average 5/1 ARM was 5.46% at the end of October.

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Current Mortgage Rates for December 2022

Current Refinance Rates for December 2022

The current average rates for mortgage refinances are:

• 30-year fixed: 6.65%
• 15-year fixed: 5.96%
• 30-year jumbo: 6.69%
• 5/1 ARM: 5.38%

Mortgage Rate Predictions For The Next 5 Years

While predicting mortgage rates for the next five years is a tall order, especially considering the unprecedented fluctuations over the past two years, one main factor that experts say will impact rates in the long term is the low level of housing inventory.

“When rates come down, we’re going to be in store for another hot housing market where there are more buyers than sellers jacking up prices because we haven’t solved the problem of there not being enough homes,” says Daryl Fairweather, chief economist at Redfin. “It’s still that affordability problem. That’s going to stay with us.”

As far as which direction interest rates go in the years ahead, Fairweather expects declines. However, the timeline for this downward trend remains uncertain.

“In every scenario, rates are going to come back down,” says Fairweather. “It’s just a matter of when.”

What Affects Mortgage Rates?

There are a complex set of factors that impact mortgage interest rates, including broader economic conditions, the monetary actions of the Federal Reserve (to some extent) and inflation. However, long-term mortgage rates are directly impacted by the bond market. The rate you’re offered on a mortgage will also depend on the lender you work with, its business costs and your financial profile.

Demand for mortgages can also affect rates, pushing it higher as available capital for lending tightens. Conversely, when there’s less borrower demand—as we’re seeing now due to average interest rates hovering in the 7% range—lenders might consider offering more competitive rates or other incentives to attract borrowers.

How to Shop for the Best Mortgage Rate

Getting an optimal rate on a home loan can save you a significant amount of money over time. Here are some tips that can help you get the best rate possible for your situation:

• Keep your eye on rates. Mortgage rates are constantly changing. Keeping a close watch will make it easier to find and lock in a better rate.
• Check your credit. When you apply for a mortgage, the lender will review your credit to determine your creditworthiness as well as your interest rate. In general, the higher your credit score, the better your rate will be. To get an idea of where you stand, check your credit before you apply and dispute any errors with the appropriate credit bureau to potentially boost your score.
• Shop around and compare lenders. Consider options from as many mortgage lenders as possible to find the best deal for you. Prospective buyers have saved more than $1,500 over a loan’s term by getting two quotes from lenders, and saved roughly $3,000 when they sought five quotes, according to Freddie Mac.

Frequently Asked Questions (FAQs)

Mortgage rates are the costs associated with taking out a loan to finance a home purchase. Because properties cost so much, most people can’t pay for them with cash, so they opt to stretch the payments over long periods of time, often as much as 30 years, to make the regular monthly payments more affordable.

When interest rates rise, reflecting changes in the economy and financial markets, so too do mortgage rates—and vice versa.

When will mortgage rates go up?

Mortgage rates have surged since the start of 2022, which reflects investors’ views that the economy is too hot and that the Federal Reserve will take any necessary steps to cool it down and rein in inflation. 

Rates for U.S. Treasury bonds, which mortgage rates follow, have hit some rough patches this year: in late February, when Russia invaded Ukraine, and over the summer when investors grew concerned about a weakening economy. During those periods, bond yields fell, and mortgage rates followed. 

Most mortgage-market experts think rates are in for a period of choppiness over the next several months but that rates are likely to settle where they are now—with the 30-year fixed-rate mortgage about 6%—for the rest of the year.

What is a mortgage rate lock?

A mortgage rate lock is a guarantee that the rate you’re offered in your mortgage application acceptance is the one you will eventually pay, assuming you close within a normal period of time and make no changes to your application.

In a period of rising or volatile interest rates—like the current one—it may be wise to lock in a rate that seems affordable for you.

When should I lock my mortgage rate?

It can be tricky to time any market, and mortgage rates are no exception. If conditions are choppy, and interest rates are likely to at least stay the same, if not rise, it may be smart to lock in a rate that works with your budget and seems fair to you.

Be sure to ask your lender about the consequences of not closing within the timeframe specified in a rate lock agreement and also about what could happen if rates fall after you lock in a rate.

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