A variety of notable mortgage rates sunk lower over the last seven days. The average interest rates for both 15-year fixed and 30-year fixed mortgages tumbled down. At the same time, average rates for 5/1 adjustable-rate mortgages also declined.
The Federal Reserve announced a 25-basis point increase to its benchmark short-term interest rate on March 22. This could have an impact on mortgage rates, but it’s difficult to say just how much for a market already in flux.
“We’re in one of the most volatile markets in terms of rates since 2008,” says Jennifer Beeston, senior vice president at Guaranteed Rate, a national mortgage lender.
Mortgages hit a 20-year high in late 2022, but now the macroeconomic environment is changing again. Rates dipped significantly in January before climbing back up in February.
While rates don’t directly track changes to the federal funds rate, they do respond to inflation. Overall, inflation remains high but has been slowly but consistently falling every month since it peaked in June 2022.
After raising rates dramatically in 2022, the Fed opted for smaller, 25-basis-point rate increases in its first two meetings of 2023. The decision to hike by 0.25% on March 22 suggests that inflation is cooling and the central bank may be able to ease up — but not stop — on its rate hikes.
While mortgage rates have dipped a bit from their December 2022 peak, they still aren’t dramatically lower. Fewer buyers are willing to jump into the housing market, driving demand down and causing home prices to ease, but that’s only part of the home affordability equation.
“Even though home prices in many parts of the country have fallen since the start of the year, high rates make buying prohibitively expensive for many,” says Jacob Channel, senior economist at loan marketplace LendingTree. It’s still difficult for many buyers, particularly those looking for their first home, to afford a monthly payment.
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.
“Instead of getting into the minutiae of what the market’s doing every six seconds, buyers need to focus on what it is they’re really trying to accomplish and have a good game plan,” Beeston says.
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
The average 30-year fixed mortgage interest rate is 6.79%, which is a decline of 21 basis points from one week ago. (A basis point is equivalent to 0.01%.) Thirty-year fixed mortgages are the most common loan term. A 30-year fixed mortgage will typically have a higher interest rate than a 15-year fixed rate mortgage — but also a lower monthly payment. 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 6.08%, which is a decrease of 14 basis points compared to a week ago. You’ll definitely have a larger 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, as long as you can afford the monthly payments, there are several benefits to a 15-year loan. You’ll typically 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 5.73%, a slide of 4 basis points compared to last week. You’ll usually get a lower interest rate (compared to a 30-year fixed mortgage) with a 5/1 adjustable-rate mortgage in the first five years of the mortgage. However, since the rate adjusts with the market rate, you might end up paying more after that time, as described in the terms of your loan. For borrowers who plan to sell or refinance their house before the rate changes, an ARM might be a good option. If not, changes in the market may significantly increase your interest rate.
Mortgage rate trends
Mortgage rates were historically low throughout most of 2020 and 2021 but increased steadily throughout 2022. Now, mortgage rates are roughly twice what they were a year ago, pushed up by persistently high inflation. That high inflation prompted the Fed to raise its target federal funds rate seven times in 2022. By raising rates, the Fed makes it more expensive to borrow money and more appealing to keep money in savings, suppressing demand for goods and services.
Mortgage interest rates don’t move in lockstep with the Fed’s actions in the same way that, say, rates for a home equity line of credit do. But they do respond to inflation. As a result, cooling inflation data and positive signals from the Fed will influence mortgage rate movement more than the most recent 25-basis-point rate hike.
We use rates collected by Bankrate to track daily mortgage rate trends. This table summarizes the average rates offered by lenders across the country:
Today’s mortgage interest rates
Rates as of March 24, 2023.
How to shop for the best mortgage rate
To find a personalized mortgage rate, meet with your local mortgage broker or use an online mortgage service. Make sure to consider your current finances and your goals when looking for a mortgage.
Things that affect the interest rate you might get on your mortgage include: your credit score, down payment, loan-to-value ratio and your debt-to-income ratio. Generally, you want a higher credit score, a higher down payment, a lower DTI and a lower LTV to get a lower interest rate.
Aside from the mortgage rate, other factors including closing costs, fees, discount points and taxes might also factor into the cost of your home. You should speak with multiple lenders — for example, local and national banks, credit unions and online lenders — and comparison shop to find the best loan for you.
What is a good loan term?
One important thing to keep in mind when choosing a mortgage is the loan term, or payment schedule. The most common loan terms are 15 years and 30 years, although 10-, 20- and 40-year mortgages also exist. Another important distinction is between fixed-rate and adjustable-rate mortgages. The interest rates in a fixed-rate mortgage are set for the duration of the loan. For adjustable-rate mortgages, interest rates are fixed for a certain number of years (most frequently five, seven or 10 years), then the rate adjusts annually based on the market rate.
When deciding between a fixed-rate and adjustable-rate mortgage, you should take into consideration the length of time you plan to live in your home. For people who plan on staying long-term in a new house, fixed-rate mortgages may be the better option. While adjustable-rate mortgages may offer lower interest rates upfront, fixed-rate mortgages are more stable over time. If you aren’t planning to keep your new house for more than three to 10 years, however, an adjustable-rate mortgage might give you a better deal. There is no best loan term as an overarching rule; it all depends on your goals and your current financial situation. Be sure to do your research and think about what’s most important to you when choosing a mortgage.
