Mortgage Rate Trends and Effects
Mortgage rates have been on a rocky road over the past two months, seesawing between just under 5% and 5.50%. That volatility is in stark contrast to the rapidly—and continuously—rising rates of the first six months of 2022. Rates on other loan categories are mixed this week. The average rate on a 15-year fixed-rate mortgage increased to 4.85%, while the rate on a 5/1 adjustable-rate mortgage decreased to 4.36%.
The current average rate for the benchmark 30-year fixed mortgage is 5.92%, rising 32 basis points compared to this time last week. If you're planning to refinance, today's national 30-year fixed refinance rate is 5.85%, up 26 basis points compared to this time last week. Meanwhile, the average 15-year fixed refinance rate is 5.11%, up 19 basis points over the last week.
Borrowing costs have surged over the past several months, impacting the bottom lines of homeowners and borrowers alike. Mortgage rates are more than two percentage points higher than at the start of the year, after registering the biggest quarterly climb in 28 years in the first quarter. That means anyone hoping for rates to fall may be waiting for a while. Rising inflation is one reason rates are expected to climb.
No single element determines the mortgage rate you receive. A combination of factors will ultimately influence how lenders determine your interest rate, some of which you can influence and others you cannot. For example, if you have a good credit score or choose a shorter-term loan, you can probably get a lower mortgage rate. Meanwhile, economic trends like inflation are out of your hands. That’s why understanding mortgage rates and what causes them to fluctuate are key to saving you money on your home loan. Generally speaking, the more you put down, the lower your mortgage rate will be because a bigger upfront payment reduces the lender’s risk. A down payment of 20% (or more) means other benefits, including eliminating the need for private mortgage insurance. If you can put down at least 20% without busting your budget, it could lower your monthly payments.
What does this mean for mortgage rates?
Mortgage rates are based on the Mortgage-backed Securities (MBS) market which is independent of the Treasury bond as well as the stock market. MBS typically reacts within certain tolerances of those financial markets. The impact on mortgage rates is unknown right now. Rates could go higher if the stock market rallies and causes long-term rates such as mortgages to increase. If the stock market plunges further, mortgage rates could drop. And keep in mind, that this can change hour by hour.
What are other factors that impact your interest rate?
On any given day, there are a variety of factors that can impact your interest rate such as:
- Home price and the loan amount- Your home price minus your down payment will determine how much you’ll borrow which helps determine how much the interest rate will be.
- Down payment-Generally, a higher percentage down payment equals a lower interest rate. The more money you put down, the more stake you have in the property.
- Loan term-Shorter terms (like a 15-year or a 20-year) generally have smaller interest rates than a 30-year term.
- Interest rate type-Interest rates come in two basic types: fixed and adjustable. Fixed rates do not change over time. Adjustable rates, on the other hand, have an initial fixed period and then go up or down based on the market. For example, a 5-year ARM loan will have a fixed rate for the first 5 years and then the rate will fluctuate from the 6th year onward.
- Loan type- Different categories of loans (like conventional, fixed-rate, FHA, etc.) have different rates.
- Credit score-Primarily based on credit report information usually sourced from credit bureaus. Typically, this is called your FICO score and is based on your credit history.
- Mortgage rates and effects are heavily reliant on many factors and it is based mostly on the economy. Pay attention to what is happening economically and get your information from reliable and reputable sources as you are looking to get a mortgage for your home-buying experience.