What is the trend in mortgage rates for 2023?
Mortgage rates climbed for most of 2023, at one point reaching nearly 8%—a level not seen in two decades before dropping closer to 6.5%. We're well into 2024 now, and after falling a bit in early March, mortgage rates are now back above 7%.
Average 30-Year Fixed Rate
After hitting record-low territory in 2020 and 2021, mortgage rates climbed to a 23-year high in 2023. Many experts and industry authorities believe they will follow a downward trajectory into 2024.
Economists and housing market experts agree that mortgage rates will fall over the next several years, but not below 3%.
Trading Economics offers a more optimistic outlook, predicting a rise to 5% in 2023 before falling to 4.25% in 2024 and 3.25% in 2025.
Locking in early can help you get what you were budgeting for from the start. As long as you close before your rate lock expires, any increase in rates won't affect you. The ideal time to lock your mortgage rate is when interest rates are at their lowest, but this is hard to predict — even for the experts.
The 30-year fixed mortgage rate is expected to fall to the mid-6% range through the end of 2024, potentially dipping into high-5% territory by the end of 2025. However, recent economic developments have led some forecasters to believe that rates will remain elevated at around 7% for the remainder of this year.
This practice is sometimes called “buying down the interest rate.” Each point the borrower buys costs 1 percent of the mortgage amount. One point on a $300,000 mortgage would cost $3,000. Keep in mind: The longer you plan to live in a home, the more potential benefit you'll get from paying for points.
- Live in the home yourself as a primary residence.
- A credit score above 580.
- A debt-to-income-ratio below 50%.
- The ability to fund the down payment either in cash or with the support of a second loan at current interest rates.
Currently, over six out of 10 purchase and refinance loans are at rates below 4%, according to Freddie Mac. Those ultra-low rates are unlikely to return anytime soon—if at all—resulting in limited motivation for many homeowners to refinance.
Forecasts indicate that 30-year mortgage rates, currently around 7.1%, might drop to 6.6% by the end of 2024, and further down to 5.9% by the end of 2025. However, experts caution that for mortgage rates to decline significantly, inflation must also fall.
What is the interest rate today?
| Product | Interest Rate | APR |
|---|---|---|
| 10-Year Fixed Rate | 6.37% | 6.44% |
| 5-1 ARM | 6.48% | 7.81% |
| 10-1 ARM | 7.09% | 7.95% |
| 30-Year Fixed Rate FHA | 7.06% | 7.10% |
Prediction of Mortgage Rates for 2025
Keep in mind that inflation is still a factor, and mortgage rates may continue to hover around 6%. Here are some predictions for 2025 from key players and industry associations in the mortgage space: Fannie Mae: 6.1% Mortgage Bankers Association: 5.9%
Many prospective homebuyers chose to wait things out in 2023, in the hopes that 2024 would bring a more advantageous market. But so far, with mortgage interest rates still relatively high and housing inventory stubbornly low, it looks like 2024 will remain a challenging time to buy a house.
On the other hand, if you lock your rate and interest rates fall, you can't take advantage of the lower rate unless your rate lock includes a float-down option.
So if you're on the fence about buying or refinancing a home this winter, know that January and February bring some of the lowest mortgage rates of the year.
Mortgage rates can change on any day of the week, Monday through Friday. However, rates are most likely to change on Mondays and Wednesdays, according to data from MBSQuoteline.
The current Bank of America, N.A. prime rate is 8.50% (rate effective as of July 27, 2023).
While Morgan Stanley anticipates a 2% drop in home prices, the National Association of Realtors' Chief Economist, Lawrence Yun, projects a 3% to 4% increase in home prices. On the other hand, the California median home price is forecasted to rise by 6.2% in 2024, hinting at localized market behavior.
Refinancing your mortgage could make sense for many reasons, including lowering your interest rate, taking cash out or switching to a fixed-rate mortgage. For most borrowers, the ideal time to refinance is when market rates have fallen below the rate on their current loan.
Over 30 years, the difference would save you $65,691 in interest. Buying power boost: If you budgeted about $1,846 a month for a mortgage payment, and the interest rate dropped 1 percentage point — from 7% to 6% — you could spend about $30,480 more on a home without increasing your monthly payment.
How much is 2 points on a mortgage?
One mortgage point typically costs 1% of your loan and permanently lower your interest rate by about 0.25%. If you took out a $200,000 mortgage, for example, one point would cost $2,000 and get you a 0.25% discount on your interest rate. Two mortgage points would cost $4,000 and lower your interest rate by 0.50%.
In a 2-1 buydown, the interest rate is slashed by 2% in the first year, 1% in the second year and then returns to normal in the third.
Home buyers no longer need a 20% down payment to buy a home. You can buy a home with a conventional loan for 3% down. And you may even be able to buy a home with no money down if you qualify for a VA or a USDA loan.
Are mortgage rates negotiable? Yes, to some degree, mortgage interest rates are negotiable. Mortgage lenders have some flexibility when it comes to the rates they offer. However, in many cases getting a lower rate on your loan will come with a price, such as paying “points” to get a lower rate.
- Shop for mortgage rates. ...
- Improve your credit score. ...
- Choose your loan term carefully. ...
- Make a larger down payment. ...
- Buy mortgage points. ...
- Lock in your mortgage rate. ...
- Refinance your mortgage.
