Despite theon Wednesday, mortgage rates have decreased today. The unusual fall in 30-year fixed mortgage rates is making headlines, but don’t forget about fixed 15-year rates, which also moved down. We also saw a reduction in the average rate of 5/1 adjustable-rate mortgages.
Why are rates sliding down, rather than rising in response to the Fed’s latest rate hike? Mortgage rates are not set by the Federal Reserve, though they are often indirectly affected. This time, however, the housing market was expecting the Fed’s 0.75 percentage point increase and had already factored it into its expectations, to prevent a sudden spike in mortgage rates.
“Mortgage rates are not directly tied to the short-term interest rate the Fed controls, but instead move relative to long-term interest rates such as the 10-year Treasury yield,” said Greg McBride, chief financial analyst at CNET’s sister site Bankrate. “Mortgage rates are responding to the increasing prospects of a US recession which has brought rates down since the peak in June.”
Although mortgage rates have been rising consistently since the start of this year, what happens next depends on whether inflation continues to climb or begins to recede.
“If we’ve seen the peak in inflation then we have seen the peak in mortgage rates,” said McBride. “The outlook for a weaker economy will hold sway as long as inflation pressures begin to show evidence of easing. If we get a couple months down the road and that hasn’t happened, then all bets are off.”
With so much uncertainty in the market, if you’re looking to buy a home, trying to time the market may not play to your favor. If inflation rises and rates climb, this could translate to higher interest rates and steeper monthly mortgage payments. And while rates have risen steeply over the past seven months, they’re still historically low. For this reason, you may have better luck locking in a lower mortgage interest rate sooner rather than later. No matter when you decide to shop for a home, it’s always a good idea to seek out multiple lenders to compare rates and fees to find the best mortgage for your specific situation.
30-year fixed-rate mortgages
The average 30-year fixed mortgage interest rate is 5.40%, which is a decrease of 40 basis points compared to one week ago. (A basis point is equivalent to 0.01%.) Thirty-year fixed mortgages are the most frequently used loan term. A 30-year fixed rate mortgage will usually have a lower monthly payment than a 15-year one — but typically a higher interest rate. Although you’ll pay more interest over time — you’re paying off your loan over a longer timeframe — if you’re looking for a lower monthly payment, a 30-year fixed mortgage may be a good option.
15-year fixed-rate mortgages
The average rate for a 15-year, fixed mortgage is 4.71%, which is a decrease of 27 basis points compared to a week ago. Compared to a 30-year fixed mortgage, a 15-year fixed mortgage with the same loan value and interest rate will have a higher monthly payment. But a 15-year loan will usually be the better deal, as long as you can afford the monthly payments. These include typically being able to get a lower interest rate, paying off your mortgage sooner, and paying less total interest in the long run.
5/1 adjustable-rate mortgages
A 5/1 ARM has an average rate of 4.11%, a slide of 10 basis points from the same time last week. You’ll typically get a lower interest rate (compared to a 30-year fixed mortgage) with a 5/1 ARM in the first five years of the mortgage. But you might end up paying more after that time, depending on the terms of your loan and how the rate shifts with the market rate. If you plan to sell or refinance your house before the rate changes, an ARM may make sense for you. But if that’s not the case, you could be on the hook for a significantly higher interest rate if the market rates shift.
Mortgage rate trends
Though mortgage rates were historically low at the beginning of 2022, they have been increasing somewhat steadily since then. The Federal Reserve recently raised interest rates by another 0.75 percentage points in an attempt to curb record-high inflation. The Fed has raised rates a total of four times this year, but inflation still remains high. As a general rule, when inflation is low, mortgage rates tend to be lower. When inflation is high, rates tend to be higher.
Whether rates continue to follow their upward projection or begin to level out or fall hinges on whether inflation begins to slow. “If inflation proves to be more persistent, I would expect mortgage rates to go up. If inflation starts to dissipate, I would expect mortgage rates to go down,” said Daryl Fairweather, chief economist at Redfin, a real estate brokerage.
We use data collected by Bankrate, which is owned by the same parent company as CNET, to track rate changes over time. This table summarizes the average rates offered by lenders across the US:
Today’s mortgage interest rates
Rates accurate as of July 29, 2022.
How to find personalized mortgage rates
To find a personalized mortgage rate, meet with your local mortgage broker or use an online mortgage service. Make sure to think about your current finances and your goals when searching for a mortgage. Things that affect what 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. Having a good credit score, a larger down payment, a low DTI, a low LTV, or any combination of those factors can help you get a lower interest rate.
Beyond the mortgage interest rate, additional costs including closing costs, fees, discount points and taxes might also factor into the cost of your house. Make sure to shop around with multiple lenders — such as credit unions and online lenders in addition to local and national banks — in order to get a mortgage that works best for you.
What is a good loan term?
When picking a mortgage, remember to consider the loan term, or payment schedule. The loan terms most commonly offered are 15 and 30 years, although you can also find 10-, 20- and 40-year mortgages. Another important distinction is between fixed- and adjustable-rate mortgages. The interest rates in a fixed-rate mortgage are stable for the duration of the loan. Unlike a fixed-rate mortgage, the interest rates for an adjustable-rate mortgage are only the same for a certain amount of time (commonly five, seven or 10 years). After that, the rate adjusts annually based on the current interest rate in the market.
One important factor to take into consideration when deciding between a fixed- and an adjustable-rate mortgage is how long you plan on staying in your house. For those who plan on staying long-term in a new house, fixed-rate mortgages may be the better option. While adjustable-rate mortgages might offer lower interest rates upfront, fixed-rate mortgages are more stable in the long term. However, you may get a better deal with an adjustable-rate mortgage if you’re only planning to keep your home for a few years. There is no best loan term as an overarching rule; it all depends on your goals and your current financial situation. It’s important to do your research and think about what’s most important to you when choosing a mortgage.