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Mortgage rates have been steadily declining and this week they fell even further. So far in December, 30-year mortgage rates have been steady below 7%.
On Friday, the Bureau of Labor Statistics released the November jobs report, which showed the job market is strong but continuing to normalize.
This is good news for mortgage rates because it means the Federal Reserve will likely keep interest rates stable at its meeting next week. Markets are even anticipating that there could be some Fed rate cuts next year, which would likely lead to a decline in mortgage rates in 2024.
However, the impact of the Fed’s rate hikes in recent years is still playing out, and inflation remains somewhat elevated. As long as inflation and the job market continue to cool, mortgage rates should also rise. But Fed officials have said they are prepared to raise rates further if necessary, which could push mortgage rates higher again.
“The recent rapid decline in interest rates – mortgage rates in particular have fallen nearly 80 basis points since the end of October – as well as continued job growth are beneficial for homebuyers. However, if labor markets remain strong, we believe the pace of…The decline in mortgage rates is unlikely to continue or be partially reversed in the near term,” Mark Palim, deputy chief economist at Fannie Mae, said in an email.
Mortgage rates today
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Mortgage Calculator
Use our free mortgage calculator to find out how current mortgage rates will affect your monthly and long-term payments.
Mortgage Calculator
$1,161 Your estimated monthly payment
- By paying a 25% larger down payment, you would save $8,916.08 in interest costs
- Lowering the interest rate by 1% would save you $51,562.03
- An additional payment of $500 per month would reduce the loan term by 146 months
By entering different terms and interest rates, you can see how your monthly payment might change.
Mortgage Rate Forecast for 2023
Mortgage rates began rising from historic lows in the second half of 2021 and rose over three percentage points in 2022.
Interest rates have risen even further this year, although they could soon fall as inflation continues to slow. Over the past 12 months, the consumer price index rose 3.2%, a significant slowdown from its peak last year of 9.1% in June.
For homeowners looking to leverage the value of their home to cover a large purchase – such as a home renovation – a home equity line of credit (HELOC) may be a good option while we wait for mortgage rates to drop. Check out some of the best HELOC lenders to start finding the right loan for you.
A HELOC is a line of credit that allows you to borrow against the equity in your home. It works similarly to a credit card: you borrow what you need, rather than receiving the entire amount you borrowed at once. It also allows you to access the money you have in your home without having to replace your entire mortgage like you would with a cash-out refinance.
Current HELOC interest rates are relatively low compared to other loan options, including credit cards and personal loans.
When will property prices fall?
House prices fell slightly each month at the end of last year, but due to extremely limited supply, we are unlikely to see major declines any time soon.
Fannie Mae researchers expect prices to rise 6.7% in 2023 and 2.8% in 2024, while the Mortgage Bankers Association expects prices to rise 5.7% in 2023 and rise of 4.1% expected in 2024.
Sky-high mortgage rates have priced many hopeful buyers out of the market, curbing demand for homes and putting downward pressure on home prices. But interest rates could fall next year, which would ease some of this pressure. The current supply of homes is also historically low, which will likely prevent prices from falling.
Advantages and disadvantages of fixed or variable rate mortgages
Fixed-rate mortgages lock in your interest rate for the entire term of your loan. Adjustable-rate mortgages fix your interest rate for the first few years, after which your interest rate increases or decreases periodically.
So how do you decide between a fixed rate mortgage and an adjustable rate mortgage?
ARMs typically start with lower interest rates than fixed-rate mortgages, but ARM interest rates may increase once the initial introductory period is over. If you’re planning on moving or refinancing before the interest rate adjusts, an ARM could be a good deal. However, keep in mind that a change in circumstances could prevent you from doing these things. Therefore, it’s a good idea to think about whether your budget could accommodate a higher monthly payment.
Fixed-rate mortgages are a good choice for borrowers who want stability because your monthly principal and interest payments won’t change over the life of the loan (although your mortgage payment could increase if your taxes or insurance go up).
But in exchange for that stability, you get a higher interest rate. It may seem like a bad deal right now, but if interest rates continue to rise in a few years, you might be glad you locked in a rate. And if interest rates drop, you may be able to refinance to snag a lower interest rate
How does a variable rate mortgage work?
Adjustable rate mortgages begin with an introductory period during which your interest rate remains fixed for a specified period of time. Once this period is over, it begins to adjust regularly – usually once a year or every six months.
How much your interest rate changes depends on the index the ARM uses and the margin set by the lender. Lenders choose the index that their ARMs use, and this interest rate can rise or fall depending on current market conditions.
Margin is the amount of interest a lender charges in addition to the index. You should shop around with several lenders to see which one offers the lowest margin.
ARMs also have limits on how much they can change and how high they can go. For example, an ARM might be limited to a 2% increase or decrease at each adjustment, with a maximum rate of 8%.
Molly Grace
Mortgage Reporter