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Mortgage rates have been steady so far this week, with the Federal Reserve poised to announce another increase to the federal funds rate this afternoon.
Inflation and tightening Fed policy have helped push mortgage rates to 20-year highs, with the average 30-year fixed mortgage rate now above 7%.
But rates may eventually peak. Many experts predict rates will drop in 2023, and they won’t rise much this year if inflation begins to show continued signs of easing.
But that’s a big “if” because the Fed has had trouble cooling prices so far. The latest Personal Consumption Expenditure Price Index, the Fed’s preferred measure of inflation, showed that prices rose 6.2% year-over-year in September — still above its target rate of 2%.
The Fed has made it clear that it is committed to reducing inflation, even if it pushes the economy into recession. If the economy enters a recession, mortgage rates could fall, though probably not to the historic lows we saw in 2020 and 2021.
Mortgage rates today
|According to the mortgage||Today’s average rate|
Mortgage refinance rates today
|According to the mortgage||Today’s average rate|
Use our free mortgage calculator to see how today’s mortgage rates affect your monthly and long-term payments.
Your estimated monthly payment
- Paying a 25% A higher down payment will save you money $8,916.08 on interest rates
- By reducing the interest rate 1% will save you $51,562.03
- Paying extra $500 Each month reduces the loan tenure 146 months
By plugging in different tenures and interest rates, you’ll see how your monthly payment can change.
2023 Mortgage Rate Projection
Mortgage rates began to rise from historic lows in the second half of 2021 and are up more than three percentage points so far in 2022. They will remain close to their current levels for the remainder of 2022.
But many forecasts expect rates to start falling next year. In their latest forecast, Fannie Mae researchers predicted that rates are currently at their peak and that 30-year fixed rates will drop to 6.2% by the end of 2023.
The Mortgage Bankers Association also noted that a recession could cause rates to fall even faster in the first half of 2023. It currently estimates that there is a 50% chance of a mild recession materializing over the next year.
Whether the Federal Reserve can bring inflation under control depends on whether mortgage rates fall in 2023.
Over the past 12 months, the Consumer Price Index has risen by 8.2%. This is a slight slowdown compared to the previous month’s numbers, which means the Fed will need to continue to aggressively raise prices in order to meaningfully lower federal funds rates.
As inflation slows, mortgage rates also begin to fall. If the Fed acts too aggressively and engineers a downturn, mortgage rates could fall further than current forecasts expect. But rates won’t drop to the historic lows experienced by borrowers in the past couple of years.
When will house prices go down?
Home prices are starting to decline, but even with a recession we won’t see a huge drop.
The S&P Case-Shiller Home Price Index shows prices are still rising year over year, although they fell on a monthly basis in July. Fannie Mae researchers expect prices to decrease by 1.5% in 2023, while the MBA expects an increase of 2.8% in 2023 and 2.1% in 2024.
Sky high mortgage rates have pushed many promising buyers out of the market, slowing home buying demand and putting downward pressure on home prices. But rates may start coming down next year, which will take some of the pressure off. The current supply of homes is historically low, which prevents prices from falling too far.
Fixed Rate vs. Adjustable Rate Mortgage Pros and Cons
Fixed rate mortgages lock in your rate for the entire life of your loan. Adjustable rate mortgages lock in your rate for the first few years, after which your rate will increase or decrease periodically.
ARMs typically start out with lower rates than fixed-rate mortgages, but ARM rates can increase after your initial introductory period ends. If you plan to move or refinance before the rate adjusts, an ARM is a good deal. But keep in mind that a change in circumstances can prevent you from doing these things, so it’s a good idea to think about whether your budget can handle a higher monthly payment.
A fixed-rate mortgage is a good choice for borrowers who want stability, because your monthly principal and interest payments don’t change throughout the life of the loan (although your mortgage payment may increase if your taxes or insurance go up).
But in exchange for this stability, you charge a higher rate. It may seem like a bad deal right now, but if rates rise further in a few years, you may be glad you locked in the rate. And if rates drop, you can refinance to snag a lower rate
How does an adjustable rate mortgage work?
ARMs start with an introductory period where your rate is fixed for a certain period of time. After that period is over, it begins to adjust periodically – usually once a year or every six months.
How much your rate changes depends on the index the ARM uses and the margin set by the lender. Lenders choose the index their ARMs use, and this rate can trend up or down depending on current market conditions.
Margin is the amount of interest charged by the lender on the index. You should shop around with multiple lenders to see which one offers the lowest margin.
ARMs come with limits on how much they can change and how high they can go. For example, an ARM may be limited to a 2% increase or decrease each time it is adjusted, with a maximum rate of 8%.
Should I get a HELOC? Good and bad
If you’re looking to tap into your home equity, a home equity line of credit, or HELOC, is the best way to do it right now. Unlike a cash-out refinance, you don’t have to get a whole new mortgage with a new interest rate, and you get a better rate with a home equity loan.
But HELOCs don’t always make sense. It is important to consider the pros and cons.
- Pay interest only on what you borrow
- Home equity loans often have lower rates than alternatives, including personal loans and credit cards
- If you have enough equity, you can potentially borrow more than you can with a personal loan
- Rates vary, which means your monthly payments may increase
- Taking equity out of your home can be risky if property values fall or you default on a loan
- The minimum repayment amount may be higher than what you want to borrow