A variety of notable mortgage rates dropped today. The average interest rates for both 15-year fixed and 30-year fixed mortgages were slashed. For variable rates, the 5/1 adjustable-rate mortgage also fell.
Mortgage rates have increased fairly consistently since the start of 2022, following in the wake of a series of interest rate hikes by the Federal Reserve. Interest rates are dynamic and unpredictable — at least on a daily or weekly basis — and they respond to a wide variety of economic factors. But the Fed’s actions, designed to mitigate the high rate of inflation, are having an unmistakable impact on mortgage rates.
If you’re looking to buy a home, trying to time the market may not play to your favor. If inflation continues to increase and rates continue to climb, it will likely translate to higher interest rates — and steeper monthly mortgage payments. As such, you may have better luck locking in a lower mortgage interest rate sooner rather than later. No matter when you decide to shop for a home, it’s always a good idea to seek out multiple lenders to compare rates and fees to find the best mortgage for your specific situation.
30-year fixed-rate mortgages
The average 30-year fixed mortgage interest rate is 6.52%, which is a decrease of 11 basis points from seven days ago. (A basis point is equivalent to 0.01%.) The most frequently used 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. Although you’ll pay more interest over time — you’re paying off your loan over a longer timeframe — if you’re looking for a lower monthly payment, a 30-year fixed mortgage may be a good option.
15-year fixed-rate mortgages
The average rate for a 15-year, fixed mortgage is 5.85%, which is a decrease of 15 basis points compared to a week ago. Compared to a 30-year fixed mortgage, a 15-year fixed mortgage with the same loan value and interest rate will have a higher monthly payment. However, as long as you can afford the monthly payments, there are several benefits to a 15-year loan. You’ll most likely get a lower interest rate, and you’ll pay less interest in total because you’re paying off your mortgage much quicker.
5/1 adjustable-rate mortgages
A 5/1 ARM has an average rate of 5.45%, a downtick of 4 basis points from seven days ago. With an adjustable-rate mortgage mortgage, you’ll typically get a lower interest rate than a 30-year fixed mortgage for the first five years. However, you could end up paying more after that time, depending on the terms of your loan and how the rate adjusts with the market rate. For borrowers who plan to sell or refinance their house before the rate changes, an ARM might be a good option. Otherwise, changes in the market means your interest rate may be much higher once the rate adjusts.
Mortgage rate trends
Though mortgage rates were historically low at the beginning of 2022, they have been rising steadily since. The Federal Reserve recently raised interest rates by another 0.50 percentage points in an attempt to curb record-high inflation. The Fed has raised rates a total of seven times this year, but inflation still remains high. As a general rule, when inflation is low, mortgage rates tend to be lower. When inflation is high, rates tend to be higher.
Though the Fed does not directly set mortgage rates, the central bank’s policy actions influence how much you pay to finance your home loan. If you’re looking to buy a house, keep in mind that the Fed has signaled it will continue to raise rates into 2023, which would likely continue to drive mortgage rates upward.
We use information collected by Bankrate, which is owned by the same parent company as CNET, to track changes in these daily rates. This table summarizes the average rates offered by lenders across the country:
Today’s mortgage interest rates
Rates accurate as of Dec. 21, 2022.
How to find the best mortgage rates
When you are ready to apply for a loan, you can reach out to a local mortgage broker or search online. Make sure to think about your current financial situation and your goals when trying to find a mortgage.
A range of factors — including your down payment, credit score, loan-to-value ratio and debt-to-income ratio — will all affect the interest rate on your mortgage. Having a higher credit score, a larger down payment, a low DTI, a low LTV, or any combination of those factors can help you get a lower interest rate.
The interest rate isn’t the only factor that affects the cost of your home — be sure to also consider other factors such as fees, closing costs, taxes and discount points. You should talk to a variety of lenders — for example, local and national banks, credit unions and online lenders — and comparison shop to find the best mortgage for you.
What is a good loan term?
One important factor to consider when choosing a mortgage is the loan term, or payment schedule. The loan terms most commonly offered are 15 years and 30 years, although you can also find 10-, 20- and 40-year mortgages. Mortgages are further divided into fixed-rate and adjustable-rate mortgages. For fixed-rate mortgages, interest rates are fixed for the life of the loan. Unlike a fixed-rate mortgage, the interest rates for an adjustable-rate mortgage are only the same for a certain amount of time (most frequently five, seven or 10 years). After that, the rate adjusts annually based on the market interest rate.
When choosing between a fixed-rate and adjustable-rate mortgage, you should take into consideration how long you plan to stay in your house. If you plan on living long-term in a new house, fixed-rate mortgages may be the better option. Fixed-rate mortgages offer greater stability over time compared to adjustable-rate mortgages, but adjustable-rate mortgages may offer lower interest rates upfront. If you don’t plan to keep your new home for more than three to 10 years, though, an adjustable-rate mortgage might give you a better deal. The best loan term is entirely dependent on your specific situation and goals, so make sure to take into consideration what’s important to you when choosing a mortgage.
