Mortgage rates moved lower this week as financial markets awaited the U.S. Federal Reserve's announcement on rate hikes - and when they might stop.
According to Freddie Mac's weekly analysis, the average rate on a 30-year fixed-rate loan decreased to 6.39%, down 0.04 percentage points from last week.
Borrowers looking into a 15-year fixed-rate mortgage will find slightly higher rates this week. The current average rate for that type of loan is 5.76%; up 0.05 percentage points from a week ago.
On Wednesday, the Federal Reserve announced a 0.25 percentage point increase in the federal fund rate, the 10th increase in 14 months. There was, however, a shift in the Fed's language about future rate hikes, leading many to believe the central bank may finally be ready to pause rate increases - at least for the time being.
As a result of the Fed's outlook, and recent volatility in the banking sector, "Mortgage rates inched down slightly," Sam Khater, chief economist for Freddie Mac, said in a statement.
Today's homebuyers are facing an inventory shortage, but are getting used to rates hovering around 6.5%, Khater added.
If you are offered a rate that is higher than you expect, make sure to ask why, and compare offers from multiple lenders. (Money's list of the Best Mortgage Lenders is a good place to start. Homeowners considering a mortgage refinance should consider our list of the Best Mortgage Refinance Companies.)
Here's a round-up of the latest news in housing and real estate:
Mortgage rates were mixed -
For its weekly rate analysis, Freddie Mac looks at rates offered for the week ending each Thursday. The average rate represents roughly the rate a borrower with strong credit and a 20% down payment can expect to see when applying for a mortgage right now. Borrowers with lower credit scores will generally be offered higher rates.
Rates moved lower yesterday for all loan types. The average rate on a 30-year fixed-rate mortgage dropped to 7.133%, a decrease of 0.219 percentage points from Tuesday's rate.
Money's daily mortgage rates are a national average and reflect what a borrower with a 20% down payment, no points paid and a 700 credit score - roughly the national average score - might pay if he or she applied for a home loan right now. Each day's rates are based on the average rate 8,000 lenders offered to applicants the previous business day. Your individual rate will vary depending on your location, lender and financial details.
These rates are different from Freddie Mac's rates, which represent a weekly average based on a survey of quoted rates offered to borrowers with strong credit, a 20% down payment and discounts for points paid.
The rate on your mortgage can make a big difference in how much home you can afford and the size of your monthly payments.
If you bought a $250,000 home and made a 20% down payment - $50,000 - you would end up with a starting loan balance of $200,000. On a $200,000 home loan with a fixed rate for 30 years:
You can experiment with a mortgage calculator to find out how much a lower rate or other changes could impact what you pay. A home affordability calculator can also give you an estimate of the maximum loan amount you may qualify for based on your income, debt-to-income ratio, mortgage interest rate and other variables. The Consumer Financial Protection Bureau can also provide a range of rates being offered by lenders in each state.
There are other factors that determine how much you'll pay each month, which are detailed in the loan disclosures provided by your lender. These factors include:
Loan Term:
Choosing a 15-year mortgage instead of a 30-year mortgage will increase monthly mortgage payments but reduce the amount of interest paid throughout the life of the loan.
Fixed vs. ARM:
The mortgage rates on adjustable-rate mortgages reset regularly (after an introductory period) and monthly payments change with it. With a fixed-rate loan payments remain the same throughout the life of the loan.
Taxes, HOA Fees, Insurance:
Homeowners' insurance premiums, property taxes and homeowners association fees are often bundled into your monthly mortgage payment. Check with your real estate agent to get an estimate of these costs.
Mortgage Insurance:
Mortgage insurance costs up to 1% of your home loan's value per year. Borrowers with conventional loans can avoid private mortgage insurance by making a 20% down payment or reaching 20% home equity. FHA borrowers pay a mortgage insurance premium throughout the life of the loan.
Closing Costs:
Some buyers finance their new home's closing costs into the loan, which adds to the debt and increases monthly payments. Closing costs generally run between 2% and 5% and the sale prices.
Mortgage rates are an important part of the homeownership puzzle. Our guide answers some of the most common questions surrounding mortgage rates and how they affect the housing market.
Home sales edged lower in March, the most recent month where data is available, as homebuyers took a step back from the housing market.
Sales of existing homes, which include closed transactions for single-family homes, condos, townhomes and co-ops, were 2.4% lower compared to the previous month, according to the National Association of Realtors.
On a seasonally adjusted basis, the number of annual home sales dropped to 4.44 million units as a result of the downturn.
The slide coincides with the uptick in mortgage rates that occurred in February when many of the sales contracts are likely to have been signed.
"Home sales are trying to recover and are highly sensitive to changes in mortgage rates," said Lawrence Yun, NAR's chief economist, in a press release.
Compared to March 2022, home sales were down by 22%, highlighting the drastic impact that higher rates have had on the housing market.
On a more positive note, unsold inventory ticked up to 980,000 homes, which represents a 2.6-month supply at the current pace of sales.
Most mortgage lenders use your FICO score - a credit score created by the Fair Isaac Corporation - to determine your loan eligibility.
Lenders will request a merged credit report that combines information from all three of the major credit reporting bureaus - Experian, Transunion and Equifax. This report will also contain your FICO score as reported by each credit agency.
Each credit bureau will have a different FICO score and your lender will typically use the middle score when evaluating your creditworthiness. If you are applying for a mortgage with a partner, the lender can base their decision on the average credit score of both borrowers.
Lenders may also use a more thorough residential mortgage credit report that includes more detailed information that won't appear in your standard reports, such as employment history and current salary.
A good mortgage rate is one where you can comfortably afford the monthly payments and where the other loan details fit your needs. Consider details such as the loan type (i.e. whether the rate is fixed or adjustable), length of the loan, origination and lender fees and other costs. Note that refinance rates tend to be higher than purchase rates for a primary residence.
That said, today's mortgage rates are near historic lows. Freddie Mac's average rates show what a borrower with a 20% down payment and a strong credit score might be able to get if they were to speak to a lender this week.
If you are making a smaller down payment, have a lower credit score or are taking out a non-conforming (or jumbo loan) mortgage, you may see a higher rate. It's also worth noting that jumbo loans have a higher down payment requirement than conventional loans. Money's daily mortgage rate data shows borrowers with 700 credit scores are finding rates averaging above 7% right now.
Lenders use a number of factors to set rates each day. Every lender's formula will be a little different but will factor in the current federal funds rate (a short-term rate set by the Federal Reserve), competitor rates and even how much staff they have available to underwrite loans. Your individual qualifications will also impact the rate you are offered.
In general, rates track the yields on the 10-year Treasury note. Average mortgage rates are usually about 1.8 percentage points higher than the yield on the 10-year note.
Yields matter because lenders don't keep the mortgage they originate on their books for long. Instead, in order to free up money to keep originating more loans, lenders sell their mortgages to entities like Freddie Mac and Fannie Mae. These mortgages are then packaged into what are called mortgage-backed securities and sold to investors. Investors will only buy if they can earn a bit more than they can on the government notes.
Your individual qualifications will also impact the rate you are offered, as will the loan-to-value ratio (LTV). The LTV of your property is one way lenders assess the amount of risk posed by approving a loan and is calculated by dividing the maximum loan amount you qualify for by the appraised home value.
Shopping around for the best mortgage rate can mean a lower rate and big savings. On average, borrowers who get a rate quote from one additional lender save $600 over the life of the loan, according to Freddie Mac. That number goes up to $1,200 if you get three quotes. A larger down payment amount will also result in a lower interest rate.
The best mortgage lender for you will be the one that can give you the lowest rate and the terms you want. Your local bank or credit union is one place to look. Online lenders have expanded their market share over the past decade and promise to get you pre-approved within minutes.
Shop around to compare loan options, rates and terms, and make sure your lender has the type of mortgage you need. Not all lenders write FHA loans, USDA-backed mortgages or VA loans, for example. If you're not sure about a lender's credentials, ask for its NMLS number and search for online reviews.
Borrowers often mix up interest rates and annual percentage rates (APR). That's understandable since both rates refer to how much you'll pay for the loan. While similar in nature, the terms are not synonymous.
An interest rate is what a lender will charge on the principal amount being borrowed. Think of it as the basic cost of borrowing money for a home purchase.
An APR represents the total cost of borrowing money and includes the interest rate plus any fees, associated with generating the loan. The APR will always be higher than the interest rate.
For example, a $300,000 loan with a 3.1% interest rate and $2,100 worth of fees would have an APR of 3.169%.
When comparing rates from different lenders, look at both the APR and the interest rate. The APR will represent the true cost over the full term of the loan, but you'll also need to consider what you're able to pay upfront versus over time.
You may have a higher-than-average mortgage rate for a number of reasons. Credit scores, loan terms, interest rate types (fixed or adjustable), down payment size, home location and loan size will all affect the rate offered to individual home shoppers. One of the best ways to lower your rate is to improve your credit score.
Different mortgage lenders offer different rates. It's estimated that about half of all buyers only look at one lender, primarily because they tend to trust referrals from their real estate agent. But shopping around for a lender will help you snag the lowest rate out there.
Mortgage rates were mixed -
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