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 handful of closely followed mortgage rates moved down today.
The averages for 30-year fixed, 15-year fixed, and 5/1 ARMs are:
- 30-year fixed mortgage rates are averaging 5.41%
- 20-year mortgage rate: 5.41%
- 15-year fixed mortgage rates are averaging 4.70%
- The average 10-year fixed-rate mortgage currently sits at 4.63%
- The average 5/1 adjustable mortgage currently sits at 4.20%
Mortgage Rate Forecast: What Drives Changes in Mortgage Rates?
Various economic factors have led to an increase in mortgage rates this year. Persistently high inflation is a big reason, Jacob Channel, senior economic analyst at LendingTree told us. According to the Bureau of Labor and Statistics June inflation report, inflation recently reached 9.1%, its highest level in 40 years. Because inflation remained higher than expected, the Federal Reserve increased its benchmark short-term rate by 50 basis points in May, then by 75 basis points in June, and the July rate hike is expected to be another 75 points.
A spike in mortgage rates preceded the Fed’s announcement after the inflation report was released. “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.
“There are signs that some of the main drivers of inflation are easing, such as lower oil and other commodity prices in July, slower wage growth, and declining supply chain pressures. However, service price increases led by housing and pent-up demand for vehicles will keep inflation elevated in the coming months,” Dawit Kebede, senior economist for the Credit Union National Association, said in a statement. Energy prices are half responsible for these increases, he said.
Are Current Mortgage Rates Good For Buying a Home Right Now?
Despite the dramatic increases, mortgage rates remain at relatively normal levels and are still considered historically favorable mortgage rates.
Home prices are also on the rise, and as rates increase, that will also contribute to the rising cost of home ownership. Prices are up significantly from before the pandemic, with a combination of limited supply of homes, higher costs to build homes and massive demand from buyers leading to the surge.
It’s also important to remember that while mortgage rates are important, and the difference of a point or so can mean a lot of money over a 30-year mortgage, experts advise against trying to time the market to get the best mortgage rate. Focus on finding the right house, and do it when your personal lifestyle and financial situation indicate it’s the right time.
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.”
Pay Attention to Loan Fees
The industry term for the upfront fees you pay when you get a home loan is closing costs. This includes lender fees and escrow fees, such as taxes and insurance. These fees vary depending on the size of your loan, but are usually 3% to 6% of your loan balance. Your closing costs play a crucial role in determining your annual percentage rate (APR). In other words, the higher your closing costs, the higher your APR will be..
Current Mortgage Refinance Rates
In a surprising move, the average rate for a 30-year fixed refinance moved up, while 15-year Refinance rates went down. Shorter term, 10-year fixed-rate refinance mortgages saw growth.
Take a look at today’s refinance rates:
- Today’s average 30-year fixed refinance rate is: 5.40%
- 20-year fixed-rate refinance: 5.35%
- 15-year fixed refinance rates are averaging 4.66%
- 10-year fixed refinance rate: 4.67%
30-Year Fixed Mortgage Rates
The average 30-year fixed mortgage interest rate is 5.41%, which is an increase of 1 basis point from last week.
15-Year Fixed Mortgage Interest Rates
The median rate for a 15-year fixed mortgage is 4.70%, which is a decrease of 1 basis point from the same time last week.
A 15-year, fixed-rate mortgage’s monthly payment is, without a doubt, a much bigger monthly payment than what you’d get with a 30-year mortgage offering the same interest rate. However, 15-year loans have some considerable benefits: You’ll save thousands of dollars in interest and pay off your loan much faster.
5/1 ARM Interest Rates
A 5/1 ARM has an average rate of 4.20%, which is an addition of 9 basis points from the same time last week.
An adjustable-rate mortgage is ideal for individuals who will sell or refinance before the rate changes. If that’s not the case, their interest rates could end up being noticeably 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 your rate could climb higher and your payment might grow by hundreds of dollars a month.
How Our Mortgage Interest Rates Are Calculated
To see where mortgage rates are moving, 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 occupied by the owner.
The average rates listed below and based on the Bankrate mortgage rate survey:
|30-year jumbo mortgage rate||5.38%||5.34%||+0.04|
|30-year mortgage refinance rate||5.40%||5.38%||+0.02|
Rates as of August 5, 2022.
Mortgage Rate Frequently Asked Questions (FAQ):
How Do I Get the Lowest Mortgage Rate?
Your credit score, and loan-to-value ratio (LTV), and are the most important factors lenders use to calculate your interest rate.
To get the lowest interest rate, it’s best to have a credit score somewhere between 700-800. Having a credit score above 800 is nice, but will likely have a minimal impact on your rate.
Mortgage providers offer the biggest mortgage rate reductions to home buyers that are deemed less risky. One surefire way to signal you’re a less risky borrower is to have a bigger 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).
Is It a Good Idea to Lock in My Mortgage Rate Right Now?
Mortgage rates move up and down on a daily basis, and it’s impossible to time the market. So locking in your interest rate right now is a good idea because overall, rates are historically favorable.
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 talk with your lender. It may be able to extend the rate lock, however, you might have to pay a fee for that privilege.