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It seems mortgage rates fever has finally broken—at least for now.
After rising to 7.79% in October—the 2023 high—rates floated down notably over November amid signs of receding inflation pressures and now stand at 7.03%, according to the latest weekly data from Freddie Mac.
While this trend bodes well for a sagging housing market, still-high rates and home prices continue to create challenging conditions for buyers and sellers, hampering mortgage application activity.
Fed Pauses Rate Hikes Again: What This Means for Mortgage Rates
In a widely expected move, the Federal Open Market Committee (FOMC) voted to leave the benchmark federal funds rate unchanged after its latest two-day policy meeting on November 1. The federal funds rate is the overnight borrowing rate for commercial banks and credit unions and indirectly influences mortgage rates.
This is the second consecutive meeting where the Fed did not increase rates following a 25 basis-point hike in June, which lifted the rate range to between 5.25% and 5.5%. A basis point is one-hundredth of one percentage point.
Over the past year and a half, mortgage rates have skyrocketed to their highest levels in decades as the Fed’s aggressive actions to tame inflation continue to pummel the housing market.
Though the headline inflation reading in October remained flat at 3.2%—a sign that the Fed’s work is cooling prices—the central bank is holding firm to its 2% target.
Even so, do two pauses in a row mean the Fed is finally done with rate increases?
“I expect the Fed to keep the option for an additional future rate hike on the table, even if the odds it will need to exercise that option are low,” said Danielle Hale, chief economist at Realtor.com, in an emailed statement.
On the other hand, despite the Fed reiterating that it intends to maintain a restrictive policy stance for the time being, Matt Vernon, head of retail lending at Bank of America, sees rate cuts ahead.
“The Fed’s likely decision to cut rates in 2024 would be a key factor that could breathe new life into the housing market,” Vernon says. “As interest rates decrease, we anticipate a positive impact on housing activity.”
What policymakers have in store for 2024 could emerge when the FOMC meets next on December 12-13 for its final two-day meeting of the year.
Mortgage Rate Predictions for 2024
Here is how some experts predict market conditions will affect the average 30-year, fixed-rate mortgage in 2024:
- National Association of Realtors chief economist Lawrence Yun. “Mortgage rates look to head towards 7% in a few months and into the 6% range by the spring of 2024.”
- RSM U.S. real estate senior analyst Crystal Sunbury. “Assuming no significant economic shocks, mortgage rates are likely to continue slowly easing over the next few months, to reach a 6% to 6.5% range by spring of 2024.”
- Mortgage Bankers Association (MBA). MBA’s baseline forecast is for mortgage rates to end 2024 at 6.1% and reach 5.5% at the end of 2025 as Treasury rates decline and the spread narrows.
- Bank of America head of retail lending Matt Vernon. “The Fed’s likely decision to cut rates in 2024 would be a key factor that could breathe new life into the housing market. However, it’s important to note that significant drops in mortgage rates might not happen in the early months of 2024. If any reductions occur, they are likely to be gradual, possibly beginning in the latter part of the year.”
- Palisades Group chief investment officer and co-founder Jack Macdowell. “Our best guess is that mortgage rates will remain in the 7% to 7.25% range throughout Q1 2024. This view is based on the idea that inflation is trending positively toward the 2% target and the Federal Reserve is likely done raising interest rates in 2023.”
- Ally Home president Glenn Brunker. “With the current mortgage rates pricing around 7.5% today, we can expect them to be nearing their top and begin their descent in the first half of 2024.”
Is 2024 a Good Time To Refinance?
“Deciding whether 2024 is a good time to refinance depends on a few factors, with interest rates playing a crucial role,” says Bank of America’s Vernon.
Over 40% of U.S. mortgages originated in 2020 and 2021, when interest rates were at record lows. There were also some 14 million mortgage refinances during the same time. If you were lucky enough to secure a mortgage during that time, then 2024 is likely not the ideal time to refinance.
With rates still higher than a year ago, purchase and refinance applications remain stuck near their lowest level since the early 2000s, according to MBA data.
So now that 2023 is practically in the rearview mirror, should you be ready to refinance in 2024?
“If rates are lower than when you first got your mortgage, it might be a favorable time,” says Vernon. However, whether rates go lower in 2024 will depend, in part, on economic conditions.
“In times of uncertainty, rates typically remain low or may even decrease, whereas a thriving economy might result in higher rates, says Vernon”
Even so, if you’re considering refinancing as a way to lower your monthly payment, keep in mind that not all options yield less interest over the life of the loan.
“Remember that just because you can get a lower rate, doesn’t mean you should immediately refinance,” says Vernon. “You may be paying a lower monthly mortgage, but you may have to also extend the life of your loan and refinancing could cost you more in interest.”
Current Mortgage Rate Trends
The average mortgage rate for a 30-year fixed is 7.12%, nearly double its 3.22% level in early 2022.
The average cost of a 15-year, fixed-rate mortgage has also surged to 6.55%, compared to 2.43% in January 2022.
In the current environment, ARMs might be more affordable than those with fixed rates. The latest average for a 5/1 ARM was 6.04%.
Current Mortgage Rates for December 2023
Current Mortgage Rates for December 2023
The current average rates for mortgage refinances are:
- 30-year fixed: 7.21%
- 15-year fixed: 6.75%
- 30-year jumbo: 7.32%
- 5/1 ARM: 5.96%
What Do Current Rates Mean for Refinancing in 2023?
Refinance activity saw some small week-over-week bumps in November. Still, except for one week, activity was down compared to a year ago when the average 30-year fixed mortgage rate was over three-quarters of a percent lower, according to the MBA.
“Despite the recent downward trend, mortgage rates at current levels are still challenging for many prospective home buyers and current homeowners,” said Joel Kan, vice president and deputy chief economist at MBA, in a press statement.
Especially since refinance rates tend to be higher than purchase rates, refinance activity will likely remain stagnant going into 2024 unless mortgage rates experience a significant, sustained dip. Many borrowers still hold significantly lower interest rates stemming from historically low rates during the pandemic, resulting in limited motivation for refinancing.
Pro Tip
Refinancing your mortgage is often a great financial move if you can qualify for a rate lower than your current rate and shorten your loan term. However, make sure you’ll remain in your home long enough to recoup the closing costs.
How To Get a Lower Mortgage Refinance Rate
The good news is that, despite elevated rates, there are methods you can employ to secure a lower rate. These methods might be especially beneficial if you bought a home between mid-October and early November 2022 when rates were at their pinnacle.
Because there are closing costs and fees associated with refinancing, many mortgage experts say refinancing only makes sense if you can snag a rate that’s at least 1% lower than your current rate.
Here are some actions you can take to whittle down your refinance rate:
- Get rate quote estimates from at least three lenders
- Ask lenders about waiving or reducing closing costs
- Negotiate with your lender to match the best deal
- Take steps to strengthen your credit score
- Save for a larger down payment
- Choose a shorter-term loan
- Buy discount points
Mortgage Rate Predictions for the Next 5 Years
While predicting mortgage rates for the next five years is a tall order, especially considering the unprecedented fluctuations over the past year, experts say the low housing inventory will be a key factor in where rates go over the long term.
“When rates come down, we’re going to be in store for another hot housing market where there are more buyers than sellers jacking up prices because we haven’t solved the problem” of low inventory, says Daryl Fairweather, chief economist at Redfin. “It’s still that affordability problem. That’s going to stay with us.”
As far as which direction interest rates go in the years ahead, Fairweather expects declines. However, the timeline for this downward trend remains uncertain.
“In every scenario, rates are going to come back down,” she says. “It’s just a matter of when.”
That “when” for Melissa Cohn, regional vice president at William Raveis Mortgage, won’t be in 2023—but she doesn’t see it as too far off.
“Mortgage rates will decline over the course of the next two to three years as the rate of inflation declines and hopefully gets to the Fed target of 2%,” Cohn says. “Mortgage rates will be at least a full 2% lower by 2025.”
She adds that if the inflation rate holds at 2%, then we should see mortgage rates remain at lower levels for the balance of the next five years.
What Affects Mortgage Rates?
A complex set of factors impact mortgage interest rates, including broader economic conditions, the monetary actions of the Federal Reserve (to some extent) and inflation. However, long-term mortgage rates are directly impacted by the bond market. The rate you’re offered on a mortgage will also depend on the lender you work with, its business costs and your financial profile.
Demand for mortgages can also affect rates, pushing them higher as available capital for lending tightens. Conversely, when there’s less borrower demand—as we’re seeing now due to average interest rates hovering in the high 6% to low 7% range—lenders might consider offering more competitive rates or other incentives to attract borrowers.
How To Shop For the Best Mortgage Rate
“For buyers looking for relief, be patient. We expect to see mortgage rates begin to decline in the second quarter of 2024 as the Fed signals they are likely done with rate increases.” – Glenn Brunker, president of Ally Home
Getting an optimal rate on a home loan can save you a significant amount of money over time. Here are some tips that can help you get the best rate possible for your situation:
- Keep your eye on rates. Mortgage rates are constantly changing. Keeping a close watch will make it easier to find and lock in a better rate.
- Check your credit. When you apply for a mortgage, the lender will review your credit to determine your creditworthiness as well as your interest rate. In general, the higher your credit score, the better your rate will be. To get an idea of where you stand, check your credit before you apply and dispute any errors with the appropriate credit bureau to potentially boost your score.
- Shop around and compare lenders. Consider options from as many mortgage lenders as possible to find the best deal for you. Prospective buyers have saved more than $1,500 over a loan’s term by getting two quotes from lenders and saved roughly $3,000 when they sought five quotes, according to Freddie Mac.
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Frequently Asked Questions (FAQs)
Mortgage rates are the costs associated with taking out a loan to finance a home purchase. Because properties cost so much, most people can’t pay for them with cash, so they opt to stretch the payments over long periods of time, often as much as 30 years, to make the regular monthly payments more affordable.
When interest rates rise, reflecting changes in the economy and financial markets, so too do mortgage rates—and vice versa.
What is a mortgage rate lock?
A mortgage rate lock is a guarantee that the rate you’re offered in your mortgage application acceptance is the one you will eventually pay, assuming you close within a normal period of time and make no changes to your application.
In a period of rising or volatile interest rates—like the present one—it may be wise to lock in a rate that seems affordable for you.
When should I lock my mortgage rate?
It can be tricky to time any market, and mortgage rates are no exception. If conditions are choppy, and interest rates are likely to rise, it may be smart to lock in a rate that works with your budget and seems fair to you.
Be sure to ask your lender about the consequences of not closing within the timeframe specified in a rate lock agreement and also about what could happen if rates fall after you lock in a rate.
How do you calculate your mortgage payment?
Depending on your loan type and other factors, the components of a monthly payment can vary but typically include:
- Principal. The amount of funds you borrow from a lender for your mortgage.
- Interest. The cost the lender charges you for borrowing the funds.
- Property taxes. Payments are based on local property tax rates.
- Homeowners insurance. A separate policy for insurance coverage based on the value of your home and property.
- Private mortgage insurance (PMI). Typically only applies if you take out a conventional mortgage with a down payment below 20% of the purchase price.
- Homeowners association (HOA) or condominium fees. Only applies if your property is part of an HOA or you own a condominium.
- Escrow. An account reserved for property taxes, homeowners insurance and mortgage insurance, managed by the lender.
- Additional costs. Examples of potential additional costs include home warranties and flood insurance.
Along with the above information, plug in the home price, down payment, interest rate and loan term into a mortgage calculator to determine the most accurate monthly mortgage payment estimate.
Will mortgage rates go down in 2024?
Given the many factors that directly and indirectly impact mortgage rates, predicting where rates will go in the years ahead is tricky. Nonetheless, experts foresee an inevitable downward trend, though probably not in the immediate future.
“[O]ur economic models don’t show mortgage interest rates declining anytime soon,” says Eric Fox, chief economist and senior vice president of analytics for Veros Real Estate Solutions. “Long term into 2024, we will see interest rates starting to have the desired impact in slowing the economy, but rates will need to remain elevated for some time.”
Fox says his models suggest that rates will hover at 7.5% or higher throughout 2024.
What is the mortgage rate forecast for the next five years?
The Fed’s economic projections indicate the federal funds rate will remain higher through 2025 and in the longer run than previously expected. Nevertheless, the projections show that cuts are in store. If those projections remain and the Fed begins to lower its key rate, mortgage rates will presumably follow suit.
Sunbury predicts the Fed will cut rates by between 100 to 125 basis points starting in May or June of 2024.
“This would bring the policy rate to 4% to 4.25%,” Sunbury explains.
And though Sunbury forecasts mortgage rates dropping, she doesn’t anticipate the imminent return of the rock-bottom rates we saw in 2021 and 2022.
“As inflation eases and the policy rate comes down, we should see 30-year fixed mortgage rates come down to the 5.5% to 6% range and remain around this range longer term,” she says.
