Shopping around for the best mortgage rate is beneficial whether you’re in the market to buy or refinance a property. An affordable mortgage rate can save you thousands of dollars over the course of your loan’s lifetime. Find out what it takes to secure a low-interest rate on a mortgage and how the market is trending right now.
How Much Are Mortgages Right Now?
According to Freddie Mac, the average rate for a 30-year fixed mortgage increased from under 3% in December 2021 to over 7% this week. The current average mortgage interest rate is the highest it’s been since 2002. For both fixed- and adjustable rate mortgages, current borrowing rates are higher than they were a year ago. Prospective homeowners are forking over more money upfront to secure a lower credit rate by paying discount points.
On October 27th, 2018, the following mortgage rates were in effect:
The fixed rate for 30 years is 7.08% (+0.94 pt from last week, +3.14 pt from a year ago).
The fixed 15-year rate is now 6.36 per cent with 1.4 percentage points due to rising interest rates (from 6.23% one week ago and 2.37 per cent one year ago, respectively).
A 0.3-point increase brings the 5/1 adjustable rate to 5.96% (from 5.71% a week ago and 2.56% a year ago, respectively).
In other words, what is a reasonable interest rate on a mortgage?
Since the early 1980s, when they peaked at 18%, mortgage rates have seen every extreme, from record lows below 3% during the coronavirus epidemic to historic highs above 18% during the financial crisis of 2008. However, what has formerly considered a favourable mortgage rate is no longer applicable due to the dramatic increase in rates seen in 2022.
A mortgage interest rate that is at or below the current national average is considered a good rate. Borrowers that are financially stable, have a credit score in the mid-to-high-700s and have a low debt-to-income ratio often receive the best mortgage rates. A larger down payment might help borrowers secure a cheaper interest rate.
Will Interest Rates on Mortgages Fall?
Simply said, until inflation is under control, mortgage rates are likely to remain high. The Federal Reserve has set a target inflation rate of 2%, yet the Bureau of Economic Analysis reports that inflation increased yearly by 6.3% in April. The FR has raised its benchmark interest rate five times already this year, and further rises are expected in the coming months. Mortgage rates have been affected further by the Fed’s decision to reduce its purchases of mortgage-backed securities due to rising inflation.
The rate environment may improve when inflation slows, according to CoreLogic chief economist Frank Nothaft, who was quoted in a May 2022 podcast as saying, “but it’s not something that’s going to be done in the next few weeks or the next few months.” It may be several years before the Fed is able to get inflation under control, he says, maybe not until 2024 at the earliest. And Realtor.com’s senior economist George Ratiu tells MarketWatch that 6% 30-year fixed rates are possible if rate rises keep happening like they are.
Data from the market also implies that rates will be elevated for the foreseeable future. The latest Mortgage Finance Forecast from the Mortgage Bankers Association projects that 30-year fixed rates will hover around 5% during most of 2022, then drop to 4.8% in 2023. However, Freddie Mac’s quarterly Economic & Housing Research Forecast predicts that 30-year mortgage rates would rise steadily over time, averaging 4.6% in 2022 and 5.0% in 2023.