You may be wondering why current mortgage interest rates seem so high. The short answer: Rates are influenced by broad and complex economic conditions, including rampant inflation that the U.S. economy had long forgotten.
Fortunately, it’s possible to lower your current mortgage rate — by pulling levers you can actually reach, such as saving up for a larger down payment, buying a less expensive home or paying down existing debt.
After taking a snapshot of today’s home loan rates, we’ll review where they’re headed and what you can do to get the best possible mortgage rate for your situation.
Current interest rates for new mortgages
To the relief of US homebuyers, mortgage rates are trending lower in 2024 after nearly hitting 8% in late 2023. According to weekly Freddie Mac survey data, the average 30-year fixed mortgage rate was 6.74% for the week of March 14. Rates were at 6.60% a year prior.
Since late 2023, when the Federal Reserve indicated that it was done hiking rates to tame soaring inflation, mortgage rates have slowly ticked downward.
But with home prices across the country still elevated and amid an ongoing shortage of existing homes for sale, many aspiring buyers remain sidelined.
Here are today’s home loan rates:
The best mortgage lenders of April 2024
If you’re moving forward in the homebuying process and starting to research home loan options, consider CNN Underscored Money’s list of the best mortgage lenders, which was informed by analyzing over 3,200 data points.
What does the future of mortgage rates look like?
While the days of 2% or 3% mortgage rates are unlikely to return, rates have some room to fall. The Mortgage Bankers Association predicts that the average 30-year fixed mortgage rate will end the year at 6.1% before sliding to 5.5% by the end of 2025.
Industry experts anticipate that when the Fed makes good on its promise to cut rates, likely by late 2024, the 10-year Treasury yield will follow suit and take mortgage rates with it. Fed Chair Jerome Powell recently testified before Congress that the central bank will cut its rates once inflation shows sustained progress toward the Fed’s 2% target.
However, there is one outlier with the power to move rates: the 2024 US presidential election. Depending on how it plays out in November, the mortgage market and other industries might respond, said Brandon Matyas, an assistant branch manager with CrossCountry Mortgage in Pennsylvania.
If homebuyers are waiting out the market for a big drop in rates later this year, that strategy might backfire, said Matyas.
“If you wait until rates go lower, there’s going to be so much more competition,” Matyas said. “This is so much different than ‘05, ‘06 and ‘07 and what was happening. We just have a shortage of inventory [today] where [before] we had an inventory surplus.”
Home prices are another piece of the affordability puzzle for homebuyers. Home price growth will cool considerably in 2024, according to the National Association of Realtors. This should give some relief to homebuyers who’ve seen property values soar in recent years, fueled by a dwindling supply of existing homes.
Current mortgage refinance rates
The current average 30-year fixed refinance rate was 6.77% as of March 18, up seven basis points from the previous week, according to home-search website Zillow.
The current national average for 15-year fixed refinance rates was 6.01% on March 18. Meanwhile, the average five-year, adjustable-rate mortgage (ARM) refi rate was 6.87%, Zillow reported.
The best mortgage refinance lenders of April 2024
If you’re considering swapping your home loan for a new one, ideally with a lower interest rate (or more affordable monthly payment), consider CNN Underscored Money’s best mortgage lenders for refinancing. Our editors compared 38 widely-used lenders across 27 factors to determine the list.
Our picks at a glance
*Ratings as of Nov. 22, 2023
**Rates as of March 5, 2024, may assume 95464 zip code or discount points
Current home equity interest rates
Home equity loans typically have fixed interest rates, making monthly payments more predictable. On the other hand, home equity lines of credit (HELOCs) typically have variable interest rates that may change over time, affecting your monthly payment amount.
Here are current HELOC rates by loan amount and the borrower’s loan-to-value ratio:
How mortgage interest rates work
A mortgage interest rate is the percentage charged on the amount you borrow to buy a home. It’s essentially the cost of borrowing money from a mortgage lender.
Mortgage rates can be either fixed or adjustable. With a fixed-rate mortgage, the interest rate remains constant for the entire term of the loan (typically 15 or 30 years). This means your monthly principal-and-interest payments remain the same throughout the life of the loan, making them predictable and easier to fit into your budget.
With an adjustable-rate mortgage (ARM), the interest rate is fixed for an initial period (such as five, seven or 10 years) and then adjusts periodically based on a benchmark or index, plus a margin. The adjustments usually occur every six months or annually and can either increase or decrease your monthly payments. ARM loans often start with a lower rate than a typical fixed-rate mortgage but could become more expensive over time if rates increase.
However, the interest rate doesn’t tell the whole story of the cost of your loan. When comparing mortgage offers, it’s important to look at the annual percentage rate (APR), which includes the interest rate and other expenses, such as loan origination fees, mortgage insurance premiums, some closing costs, points and any other fees for getting a mortgage.
Takeaway: The APR is designed to give borrowers a more comprehensive and accurate picture of the true cost of a loan on an annual basis. It also gives you a point of apples-to-apples comparison if you’re shopping for a home loan.
Here’s a look at how APR can affect the lifetime cost of your mortgage. Say you borrow a $200,000 mortgage with a 30-year term at 6.00% APR. Your monthly payments would be $1,199 and you’d pay a total of $231,676 in interest over the life of the loan.
Now, let’s say that your APR is 8.00% instead. In this case, your payments would be $1,468 and you’d pay a total of $328,310 in interest — $96,634 more. This is why it’s so important to compare multiple mortgage offers to get the lowest APR possible.
Factors that influence mortgage rates
Home loan rates are determined by multiple factors, some of which you can control and some that you can’t. Understanding these factors can help you determine the rates that may be available to you and get the lowest APR possible.
Federal Reserve policy
The Federal Reserve doesn’t set mortgage rates directly, but its policies influence them. When the Fed adjusts the federal funds rate, it impacts short-term interest rates, which in turn can affect longer-term rates like those for mortgages. In general, if the Fed raises interest rates, mortgage rates increase, too.
The bond market
Mortgage rates are closely tied to the yields on government securities, particularly 10-year Treasury notes, according to Melissa Cohn, a mortgage broker and executive at William Raveis Mortgage.
“Bonds are the best index for consumers to watch,” said Cohn. “When bond yields go up, rates go up. When bond yields fall, mortgage rates fall.”
Inflation
Inflation refers to a broad increase in the cost of goods and services. Over time, inflation erodes your purchasing power, meaning you need more cash today to buy the same goods and services as before. For instance, a gallon of milk cost $4.26 in 2022 versus $3.66 the previous year, according to U.S. Department of Agriculture data.
When inflation is high, lenders increase mortgage rates to maintain their profit margins and compensate for their increased costs.
Credit scores
Higher credit scores indicate that you’ve been a responsible borrower in the past and could present a lower risk to the lender. This usually translates to a lower interest rate on your mortgage.
Conversely, lower credit scores can lead to a higher interest rate since they signal that you’ve had trouble repaying your debts. If your credit scores fall into the “poor” range (a FICO score of less than 580), you may not be able to get approved for a mortgage at all.
Debt-to-income ratio (DTI)
Your debt-to-income ratio (DTI) is calculated by dividing your total monthly debt payments by your gross monthly income. It’s then expressed as a percentage.
There are two types of DTI ratios:
- Front-end DTI: This accounts for housing-related debt (including your potential mortgage payments, property taxes, homeowners insurance and homeowners association or HOA fees, if applicable) divided by your pre-tax earnings.
- Back-end DTI: This encompasses all of your debt obligations, including housing expenses and other accounts, such as car loans, student loans and credit card payments, divided by your gross income.
Lenders use both types of DTI to assess a borrower’s risk. A higher DTI suggests that a large portion of your income is already committed to debt payments, increasing your risk of default. On the other hand, a low DTI shows that you have more disposable income to manage new debt, making you a lower-risk borrower. Ideally, your front-end ratio should be less than 28% and your back-end less than 36%.
Loan type and term
A conventional mortgage typically has stricter credit and income requirements but can offer competitive interest rates. Or you could opt for an FHA loan, which is insured by the Federal Housing Administration and comes with lower minimum credit score and down payment requirements, as well as lower interest rates than conventional loans in many cases.
Choosing a shorter-term mortgage (15 years or less) can also help you secure a lower interest rate and save money over the life of the loan. A longer-term mortgage (20 or 30 years) might result in lower monthly payments but higher overall costs.
Loan-to-value ratio (LTV)
LTV is calculated by dividing the amount of the loan by the appraised value or purchase price of the property, whichever is lower.
It’s typically expressed as a percentage. For instance, if you’re borrowing $180,000 to purchase a home worth $200,000, the LTV ratio is 90% ($180,000 divided by $200,000). A lower LTV ratio represents less risk to lenders, which can lead to lower interest rates.
Down payment
A larger down payment can help you get a lower mortgage rate for a few reasons. For one, the size of your down payment affects your loan-to-value ratio, with a larger down payment translating to a lower LTV.
A bigger down payment also means a smaller loan, which reduces the lender’s risk. If you default on the loan, the lender is more likely to recover their money in a foreclosure sale. In fact, if you put down less than 20% on a conventional mortgage, you’ll be required to pay private mortgage insurance (PMI) in addition to a potentially higher rate to compensate for the added risk. (Similarly, there are mortgage insurance premiums or MIPs on FHA loans.)
Property location and type
Rates vary slightly depending on where the property is located due to local regulations and laws.
It also makes a difference whether the property is a primary residence, a second (or “vacation”) home or an investment property. For example, mortgage rates on investment properties are typically at least 0.50 to 0.75 percentage points higher than primary mortgage rates since they’re considered riskier than owner-occupied homes.
Points
Mortgage points, also known as discount points, are fees paid directly to the lender at closing in exchange for a lower interest rate. This is often referred to as “buying down the rate.”
One mortgage point usually equals 1% of your loan amount. For instance, one point on a $200,000 mortgage would cost $2,000. Each point you buy lowers your interest rate by a set amount. This varies by lender but is often around 0.25 percentage points.
For example: Say you’re offered an interest rate of 7.00% on a $200,000 mortgage. You may have the option to prepay $2,000 to knock the rate down to 6.75%. That upfront cost would save you about $12,000 in interest over a 30-year loan term.
By reducing your interest rate, points can save you money over the life of the loan. However, it’s important to calculate the break-even point, which is when the upfront cost of the points is offset by the savings you gain from the lower interest rate. This calculation helps you determine whether buying points makes financial sense based on how long you plan to own the home.
Takeaway: Many factors play into the mortgage rates you’re offered, and each lender will have its own standards for how it sets rates. That’s why it’s important to evaluate multiple offers before borrowing. “The best way to get the lowest rate is to shop around carefully,” Cohn said, noting that rates can vary dramatically among lenders.
Historical trends in mortgage interest rates
Mortgage rates have changed considerably over the past several decades. The 1970s marked the beginning of a period of high volatility in mortgage rates. Triggered by the oil crisis, inflation soared, prompting the Fed to hike interest rates dramatically. Eventually, mortgage rates peaked at around 18.00% in the early ‘80s, the highest in recorded history.
Following the highs of the early ‘80s, mortgage rates began to decline and entered a more stable period. The 1990s, in particular, saw rates averaging between 7.00% and 9.00%, thanks to general economic stability and effective inflation control.
The early 2000s saw further declines in mortgage rates, reaching historic lows. However, these low rates and other factors contributed to the housing bubble. In 2008, the resulting housing crash and financial crisis led to a sharp downturn in the housing market, and in response, the Fed slashed rates further, bringing mortgage rates down to around 5.00%.
The years following the financial crisis saw sustained low mortgage rates, generally ranging from 3.00% to 5.00%. And the economic impact of the COVID-19 pandemic in 2020 led to near-zero federal interest rates, with mortgage rates dropping to record lows, sometimes below 3.00%.
Since the pandemic, home prices and mortgage rates surged quickly, creating a housing affordability crisis that brought home sales to their lowest level in nearly 30 years in 2023.
However, as the economy started recovering post-pandemic, inflation ran rampant. The Fed instituted a number of interest rate hikes — 11 since March 2022 — in an attempt to get inflation under control. As a result, interest rates spiked across the board, and mortgage rates now hover around 7.00%.
Related >> More on historical mortgage rate trends
Why you might refinance your mortgage rate
There are many reasons a homeowner would consider mortgage refinancing. Often, it’s to get a lower interest rate and save money. However, even in rising interest rate environments like we’re experiencing now, it’s possible to benefit from refinancing.
For example, if your overall financial situation has improved since you first took out your mortgage — perhaps your credit scores have gone up or you paid off a significant amount of debt — it may be worth refinancing your mortgage to potentially lower the rate, said Ohan Kayikchyan, a certified financial planner.
“Many borrowers desire to refinance their adjustable-rate mortgage with a fixed-rate mortgage, allowing them to have more predictable and certain monthly payments for the entire life of the mortgage,” Kayikchyan added.
Additional reporting by Deborah Kearns
Frequently asked questions (FAQs)
What is considered a “good” interest rate is somewhat subjective since rates, in part, are impacted by your financial profile. That said, a rate below today’s average (see above) would be considered good.
Mortgage rates are negotiable to a certain degree — if your credit is in good shape and you have a sizable down payment. Then you’ll have leverage to ask lenders for rate discounts and fee waivers.
Yes, lenders use credit scores to gauge your creditworthiness and the likelihood that you’ll repay the loan. The higher your scores, the less risk you present as a borrower, and the lower your rate will be.
Mortgage rates change quite often. They can change daily or even hourly.
The interest rate on a mortgage is the percentage of the loan amount you’ll pay annually for borrowing the money. It’s expressed as a percentage and determines your monthly payment toward principal and interest.
The APR is a broader measure of the cost of borrowing money and accounts for loan origination fees, mortgage insurance premiums, some closing costs, points and any other charges you may incur to secure the loan. It’s also expressed as a percentage, but is usually higher than your interest rate because it encompasses all these additional costs.
The APR is designed to give you a more comprehensive understanding of the true cost of the loan on an annual basis, making it easier to compare different mortgage and loan offers.
