After nearly two years of record-low mortgage rates, 2022 started off with rates nearly rising to levels we haven’t seen since before the pandemic.
That doesn’t mean you need to cancel your home purchase plans. Yes, rates are higher than they were in 2021, but it’s important to keep in mind 30-year fixed rates are still close to where they were a few short years ago.
Besides, there’s a lot more that goes into a homebuying decision than just an interest rate. Buying a home is about making a lifestyle choice. While the interest rate market for mortgages can shape a decision, it’s wise to not base it solely on a few basis points on a mortgage rate. What’s most important to consider is to set a realistic homebuying budget and stick to it.
Let’s take a look at current mortgage rates, where rates have been in the past, and what it all means for the borrower.
A variety of notable mortgage rates went down today. The impressive drop in 30-year fixed mortgage rates is making headlines, but don’t forget about fixed 15-year rates, which also took a tumble. The most common type of variable-rate mortgage is the 5/1 adjustable-rate mortgage (ARM) which also slid lower.
The averages for 30-year fixed, 15-year fixed, and 5/1 ARMs are:
- 30-year fixed mortgage rates are averaging 5.27%
- 20-year mortgage rate: 5.29%
- 15-year mortgage rate: 4.59%
- Today’s 10-year fixed mortgage rate is 4.51%
- The average 5/1 adjustable mortgage currently sits at 4.14%
Mortgage Rate Trends: Why Are Mortgage Rates Changing So Fast?
Mortgage rates have increased because of a variety of economic factors so far this year. Persistently high inflation is a big one, Jacob Channel, senior economic analyst at LendingTree told us. June’s inflation report shows 9.1% inflation, the highest level in 40 years. To combat this inflation, the Federal Reserve increased its benchmark short-term interest rate. Since inflation remained higher than expected, the Fed raised rates by 50 basis points in May, by 75 basis points in June, and is expected to raise them again by 75 basis point in late July.
Following the inflation report, mortgage rates spiked ahead of the Fed’s announcement. “I think what we’re seeing is that lenders had already anticipated that the Fed was going to raise the Fed funds rate by 75 basis points and they began to preemptively push mortgage rates up,” Jacob Channel, senior economist at LendingTree, told us.
In addition to the COVID lockdown in China and Russia’s invasion of Ukrainian territory, financial markets are still reacting to other global factors. “We have a lot of factors like that that are putting upward pressure on mortgage rates,” Channel says. “The volatility has been through the roof,” Shashank Shekhar, founder and CEO of InstaMortgage, told us. “The market has been adjusting to a new news cycle practically every single day.”
What do Today’s Mortgage Rates Mean for Your Home Buying Plans?
Even with the recent dramatic increases, mortgage rates remain at normal levels and are still considered historically favorable.
But the overall cost of homeownership is now rising with rising rates. With a combination of limited supply of homes, prices are up significantly from before the pandemic. The massive demand from buyers and higher costs to build homes is also contributing to the surge.
The difference of a point or so can mean a lot of money over a 30-year mortgage. But experts advise against trying to time the market to get the best mortgage rate. It’s more important to focus on finding the right house, and do it when your personal lifestyle and financial situation indicate it’s the right time.
Mortgage lenders rates can vary significantly. In order to get the best deal, shop around between a few different mortgage lenders. Be sure to get quotes from different lenders to ensure you’re getting the best deal, experts say. “The rate highly impacts your monthly affordability for as long as you will hold this home,” Skylar Olsen, principal economist at Tomo, a digital real estate and mortgage company, told us. “It is actually a critical piece of this decision, and that takes shopping around.”
Closing Costs & Loan Fees
The catchall term for the fees you pay to get a mortgage is closing costs. This includes lender fees and escrow fees, such as taxes and insurance. In general, closing costs are 3% to 6% of your loan amount, so the larger your mortgage the more you’ll pay as a total dollar amount. Paying attention to the closing costs you pay is important because the higher your closing costs, the higher your annual percentage rate (APR) will be.
Looking at Today’s Mortgage Refinance Rates
There’s good news if you’ve been considering a refinance because the average rates for 15-year fixed and 30-year fixed refinance loans sank. Shorter term, 10-year fixed-rate refinance mortgages also declined.
Today’s refinance rates are:
- The average 30-year fixed-rate refinance currently sits at: 5.27%
- 20-year fixed refinance rates are averaging 5.26%
- 15-year fixed refinance rates are averaging 4.57%
- 10-year fixed refinance rates are averaging 4.51%
30-Year Fixed Mortgage Interest Rates
The average 30-year fixed mortgage interest rate is 5.27%, which is a decline of 44 basis points from last week.
15-Year Fixed-Rate Mortgage Rates
The median rate for a 15-year fixed mortgage is 4.59%, which is a decrease of 33 basis points compared to a week ago.
A 15-year, fixed-rate mortgage’s monthly payment will be much bigger. So finding room in your budget for a 30-year loan’s monthly payment would be easier. But, 15-year loans have some considerable benefits: You’ll pay thousands less in interest and pay off your loan much sooner.
5/1 Adjustable-Rate Mortgage Rates
A 5/1 ARM has an average rate of 4.14%, a downtick of 5 basis points compared to a week ago.
An ARM is ideal for households who will sell or refinance before the rate changes. If that’s not the case, their interest rates could end up being markedly higher after a rate adjusts.
For the first five years, a 5/1 ARM will typically have a lower interest rate compared to a 30-year fixed mortgage. Keep in mind that depending on how much your loan’s rate adjusts, your payment has the potential to increase by a large amount.
How Our Mortgage Rates Are Calculated
To get an idea of where mortgage rate may move, we rely on information collected by Bankrate, which is owned by the same parent company as NextAdvisor. The daily rates survey focuses on home loans where the borrower has a high credit score (740+), a LTV of 80% or lower, and the home is a primary residence.
The current average rates listed below and based on the Bankrate mortgage rate survey:
|30-year jumbo mortgage rate||5.21%||5.67%||-0.46|
|30-year mortgage refinance rate||5.27%||5.68%||-0.41|
Rates as of August 2, 2022.
Mortgage Rate Frequently Asked Questions (FAQ):
How Do I Get the Best Mortgage Rate?
Your credit score, and loan-to-value ratio (LTV), and are the most important factors lenders use to determine your mortgage rate.
Having a credit score of 750 or above will help you qualify for the best rate. However, even a score 700 or higher can get you a noticeable rate reduction compared to a lower credit score. Once your score starts climbing above 800, the interest rate discount is negligible.
Mortgage providers offer the most substantial mortgage rate discounts to borrowers that are deemed less risky. One surefire way to signal you’re a less risky borrower is to make a larger down payment. A down payment of 20% or more will save you money in two ways: with a more favorable mortgage rate, and you’ll be able to avoid paying for private mortgage insurance (PMI).
When Should I Lock in My Mortgage Rate?
It’s impossible to know what direction mortgage rates will go from day to day. That’s why a mortgage rate lock is such a useful tool because it protects you if rates go up. And with interest rates being relatively low right now, you should lock in your rate as soon as you can.
A rate lock will only last for a set amount of time, typically 30-60 days. If you hit a snag during closing and it looks like your rate lock will expire you should contact your lender. It may offer an extension of the lock, however, you might have to pay a fee for that privilege.