A few notable mortgage rates went higher over the last seven days. The average interest rates for both 15-year fixed and 30-year fixed mortgages both increased significantly. We also saw a rise in the average rate of 5/1 adjustable-rate mortgages, though not as fast.
After nearly a year of rising mortgage rates, borrowers are finally starting to see some relief. Rates have been gradually declining since they hit their peak in late 2022, though current rates remain nearly double what they were during the record-low rate environment of the pandemic.
Inflation, and the series of rate hikes the Federal Reserve implemented in 2022 in an attempt to curb it, contributed in part to the rise in mortgage rates. Mortgage rates hit a 20-year high in late 2022, but now the macroeconomic environment is changing again.
Overall inflation remains high but has been slowly but consistently falling every month since it peaked in June 2022. The Fed’s decision to raise the federal funds rate by 0.25% on Feb. 1 after its latest meeting — the smallest increase since March 2022 — suggests that inflation may be cooling and the central bank may be able to ease up on its rate hikes.
What does this mean for homebuyers this year? Mortgage rates are likely to decrease slightly in 2023, although they’re highly unlikely to return to the rock-bottom levels of 2020 and 2021. However, rate volatility may continue for some time. “Expect mortgage rates to yo-yo up and down in the first half of the year, at least until there is a consensus about when the Fed will conclude raising interest rates,” says Greg McBride, CFA and chief financial analyst at Bankrate. (Like CNET Money, Bankrate is owned by Red Ventures.) McBride expects rates to fall more consistently as the year progresses. “Thirty-year fixed mortgage rates will end the year near 5.25%,” he predicts.
Rather than worrying about market mortgage rates, homebuyers should focus on what they can control: getting the best rate they can for their situation. Take steps to improve your credit score and save for a down payment to increase your odds of qualifying for the lowest rate available. Also, be sure to compare the rates and fees from multiple lenders to get the best deal. Looking at the annual percentage rate, or APR, will show you the total cost of borrowing and help you compare apples to apples.
30-year fixed-rate mortgages
For a 30-year, fixed-rate mortgage, the average rate you’ll pay is 6.83%, which is a growth of 17 basis points compared to one week ago. (A basis point is equivalent to 0.01%.) Thirty-year fixed mortgages are the most frequently used loan term. A 30-year fixed rate mortgage will usually have a smaller monthly payment than a 15-year one — but typically a higher interest rate. You won’t be able to pay off your house as quickly and you’ll pay more interest over time, but a 30-year fixed mortgage is a good option if you’re looking to minimize your monthly payment.
15-year fixed-rate mortgages
The average rate for a 15-year, fixed mortgage is 6.18%, which is an increase of 17 basis points from seven days ago. You’ll definitely have a higher monthly payment with a 15-year fixed mortgage compared to a 30-year fixed mortgage, even if the interest rate and loan amount are the same. However, if you’re able to afford the monthly payments, there are several benefits to a 15-year loan. These include typically being able to get a lower interest rate, paying off your mortgage sooner, and paying less total interest in the long run.
5/1 adjustable-rate mortgages
A 5/1 ARM has an average rate of 5.57%, a climb of 8 basis points compared to last week. With an ARM mortgage, you’ll usually get a lower interest rate than a 30-year fixed mortgage for the first five years. However, shifts in the market could cause your interest rate to increase after that time, as detailed in the terms of your loan. If you plan to sell or refinance your house before the rate changes, an adjustable-rate mortgage may make sense for you. But if that’s not the case, you may be on the hook for a much higher interest rate if the market rates change.
Mortgage rate trends
Mortgage rates were historically low throughout most of 2020 and 2021 but increased steadily throughout 2022. The Federal Reserve raised the target federal funds rate — which influences the cost of most consumer loans, including mortgages — seven times in 2022 in an attempt to curb record-high inflation. Though the Fed doesn’t directly control mortgage rates, higher inflation and a higher federal funds rate tend to lead to higher mortgage rates.
The Fed’s latest 0.25% increase — smaller than its six previous increases of 0.75% or 0.5% — represents a shift in the Fed’s stance and suggests that the central bank might be less aggressive in its rate hikes in 2023 if inflation continues to come down. But inflation is still far from the Fed’s 2% target range and Fed officials have stated repeatedly (PDF) that additional rate hikes — albeit smaller ones — will be necessary. All said, while we may see mortgage rates pull back gradually this year, borrowers shouldn’t expect a sharp drop or a return to pandemic lows.
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 US:
Today’s mortgage interest rates
Rates as of Feb. 20, 2023.
How to find the best mortgage rates
You can get a personalized mortgage rate by reaching out to your local mortgage broker or using an online calculator. Make sure to think about your current financial situation and your goals when searching for a mortgage.
A range of factors — including your down payment, credit score, loan-to-value ratio and debt-to-income ratio — will all affect your mortgage interest rate. Having a good credit score, a higher down payment, a low DTI, a low LTV or any combination of those factors can help you get a lower interest rate.
Aside from the mortgage interest rate, factors including closing costs, fees, discount points and taxes might also affect the cost of your house. You should talk to several different lenders — like local and national banks, credit unions and online lenders — and comparison-shop to find the best mortgage loan for you.
How does the loan term impact my mortgage?
One important thing you should consider when choosing a mortgage is the loan term, or payment schedule. The mortgage terms most commonly offered are 15 years and 30 years, although you can also find 10-, 20- and 40-year mortgages. Another important distinction is between fixed-rate and adjustable-rate mortgages. For fixed-rate mortgages, interest rates are stable for the life of the loan. For adjustable-rate mortgages, interest rates are fixed for a certain number of years (typically five, seven or 10 years), then the rate adjusts annually based on the market interest rate.
When deciding between a fixed-rate and adjustable-rate mortgage, you should think about the length of time you plan to live in your home. Fixed-rate mortgages might be a better fit for people who plan on staying in a home for quite some time. While adjustable-rate mortgages might offer lower interest rates upfront, fixed-rate mortgages are more stable in the long term. If you aren’t planning to keep your new home for more than three to 10 years, though, an adjustable-rate mortgage may give you a better deal. The best loan term is entirely dependent on your own situation and goals, so make sure to consider what’s important to you when choosing a mortgage.
