The interest rate on the most popular home loan in America has fallen for the first time in seven weeks, ending a streak that pushed borrowing costs to their highest point since 2007.
Yet even with the decline, the average 30-year fixed mortgage rate is still more than double what it was last year.
Unfortunately for borrowers, this week’s dip was just a small step back after a headlong sprint forward.
Consumers taking out loans today are spending hundreds of dollars more on their monthly mortgage payments than they would have if they bought just last month, when the 30-year rate was more than a full percentage point lower.
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30-year fixed-rate mortgages
The rate on a 30-year fixed mortgage averaged 6.66% this week, down from 6.70% one week ago, mortgage finance giant Freddie Mac reported on Thursday. Last year at this time, the typical rate was 2.99%.
The mortgage rate followed the yield on the 10-year Treasury, which slid this week amid uncertainty about the U.S. economy. The Federal Reserve is still working feverishly to quell inflation by hiking its trend-setting interest rate.
“While rate increases are needed to tame inflation and alleviate the burden it places on household budgets, higher borrowing costs have caused consumers to think twice about major purchases like homes and cars,” says Danielle Hale, chief economist of Realtor.com.
The monthly payment for a borrower financing a $400,000 home purchase with 20% down is now over $200 more than where it was last month.
15-year fixed-rate mortgages
The interest rate on a 15-year fixed mortgage averaged 5.90% this week, also down from last week when it averaged 5.96%, Freddie Mac says. A year ago at this time, the 15-year rate was averaging 2.23%.
Generally higher rates are affecting sales, prices and inventory. Shoppers have an increasing number of options available, as the number of homes now languishing on the market outweighs the decrease in new sellers entering the fray compared to last year, housing research shows.
With competition for homes easing, buyers are gaining leverage.
After years of sellers being able to call all the shots in sales negotiations, buyers will have the upper hand next year, according to a majority of housing experts recently surveyed by Zillow.
Read more: Do you fall in America’s lower, middle, or upper class? How your income stacks up
5-year adjustable-rate mortgage
The rate on a five-year adjustable-rate mortgage (ARM) averaged 5.36% this week, up from 5.30% last week.
Last year at this time, the five-year ARM averaged 2.52%.
Adjustable mortgages start out with lower interest rates than longer-term loans, so it’s no surprise that ARMs have been gaining traction as of late.
Among all mortgage applications filed last week, the share of ARMs rose to nearly 12%, according to a weekly survey from the Mortgage Bankers Association (MBA). In January, ARMs accounted for just 3.8% of applications.
Some borrowers opting for five-year ARMs are betting rates will eventually come back down, at which time they could potentially refinance into a lower, fixed-rate loan.
After the initial term, five-year ARMs adjust each year — up or down — based on movements to the prime rate or another benchmark.
Mortgage applications this week
Mortgage activity has fallen to its lowest level in 25 years, according to the MBA’s survey for the week ending Sept. 30.
Mortgage applications plunged 14.2% from one week earlier.
The decline was led by an 18% drop in applications to refinance mortgages. Refi applications were down 86% from last year at the same time.
Applications to purchase homes were down by double digits, too, falling 13% from the previous week’s survey. They were down 37% from last year.
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
