LOS ANGELES (AP) — Prospective homebuyers are facing higher costs to finance a home with the average long-term U.S. mortgage rate moving above 7% this week to its highest level in nearly five months.
The average rate on a 30-year mortgage rose to 7.1% from 6.88% last week, mortgage buyer Freddie Mac said Thursday. A year ago, the rate averaged 6.39%.
When mortgage rates rise, they can add hundreds of dollars a month in costs for borrowers, limiting how much they can afford at a time when the U.S. housing market remains constrained by relatively few homes for sale and rising home prices.
“As rates trend higher, potential homebuyers are deciding whether to buy before rates rise even more or hold off in hopes of decreases later in the year,” said Sam Khater, Freddie Mac’s chief economist. “Last week, purchase applications rose modestly, but it remains unclear how many homebuyers can withstand increasing rates in the future.”
AP business correspondent Alex Veiga reports mortgage rates reaching their highest level in months.
After climbing to a 23-year high of 7.79% in October, the average rate on a 30-year mortgage had remained below 7% since early December amid expectations that inflation would ease enough this year for the Federal Reserve to begin cutting its short-term interest rate.
Mortgage rates are influenced by several factors, including how the bond market reacts to the Fed’s interest rate policy and the moves in the 10-year Treasury yield, which lenders use as a guide to pricing home loans.
But home loan rates have been mostly drifting higher in recent weeks as stronger-than-expected reports on employment and inflation have stoked doubts over how soon the Fed might decide to start lowering its benchmark interest rate. The uncertainty has pushed up bond yields.
The yield on the 10-year Treasury jumped to around 4.66% on Tuesday — its highest level since early November — after top officials at the Federal Reserve suggested the central bank may hold its main interest steady for a while. The Fed wants to get more confidence that inflation is sustainably heading toward its target of 2%.
The yield was at 4.64% at midday Thursday after new data on applications for unemployment benefits and a report showing manufacturing growth in the mid-Atlantic region pointed to a stronger-than-expected U.S. economy.
“With no cuts to the federal funds rate imminent and with the economy still strong, there is no reason to see downward pressure on mortgage rates right now,” said Lisa Sturtevant, chief economist at Bright MLS. “It seems increasingly likely that mortgage rates are not going to come down any time soon.”
Sturtevant said it’s likely the average rate on a 30-year mortgage will hold close to 7% throughout the spring before easing to the mid-to-high 6% range into the summer.
Other economists also expect that mortgage rates will ease moderately later this year, with forecasts generally calling for the average rate to remain above 6%.
Mortgage rates have now risen three weeks in a row, a setback for home shoppers this spring homebuying season, traditionally the housing market’s busiest time of the year.
Sales of previously occupied U.S. homes fell last month as home shoppers contended with elevated mortgage rates and rising prices.
While easing mortgage rates helped push home sales higher in January and February, the average rate on a 30-year mortgage remains well above 5.1%, where was just two years ago.
That large gap between rates now and then has helped limit the number of previously occupied homes on the market because many homeowners who bought or refinanced more than two years ago are reluctant to sell and give up their fixed-rate mortgages below 3% or 4%.
Meanwhile, the cost of refinancing a home loan also got pricier this week. Borrowing costs on 15-year fixed-rate mortgages, often used to refinance longer-term mortgages, rose this week, pushing the average rate to 6.39% from 6.16% last week. A year ago it averaged 5.76%, Freddie Mac said.
Whether you’re in the market for a new student loan or looking to lower your current student loan payments, there may be a federal loan program available to help.
Student loan programs sponsored by the federal government are available to any eligible borrower (not just federal employees) and don’t always require a credit check. They also come with some advantages over private student lending options, such as income-based repayment plans, forgiveness programs, and (in some cases) lower interest rates.
Whatever stage you’re at in your education or borrowing journey, here’s what you need to know about federal student loan programs.
Why Consider Federal Loan Programs?
The federal government offers student loan programs for undergraduate students, graduate students, as well as those who are in the repayment phase of their student loan journey. These programs include:
• Direct Subsidized Loans With Direct Subsidized Loans, which are available to students who demonstrate financial need, the government pays all the interest that accrues on the loan during school and for six months after graduation.
• Direct Unsubsidized Loans Direct Unsubsidized Loans are available to eligible undergraduate, graduate, and professional students and are not based on financial need. With these loans, students are responsible for repaying all interest that accrues on the loan.
• Direct PLUS Loans Graduate or professional students (and parents of undergraduate students) can tap into Direct PLUS Loans. Eligibility isn’t based on financial need, but you must undergo a credit check. These loans have higher interest rates and fees than Direct Unsubsidized Loans, but you can borrow more money — up to your total cost of attendance, minus other aid received.
• Direct Consolidation Loans Direct Consolidation Loans allow you to combine your eligible federal student loans into a single loan with one loan servicer. This can simplify repayment. However, it won’t lower your interest rate. 💡 Quick Tip: Ready to refinance your student loan? You could save thousands.
Take control of your student loans. Ditch student loan debt for good.
Benefits of Federal Loan Programs for Students
Federal loan programs offer a number of benefits for college students. Here are some to keep in mind.
• Payments not due until six months after graduation: Students don’t need to make any payments on their student loans while they are in school at least half-time or during the post-graduation grace period, which is six months.
• Fixed interest rates: Federal student loans have fixed interest rates that are often lower than student loans from private lenders. For federal loans first disbursed on or after July 1, 2023, and before July 1, 2024, the rate is 5.50% for undergraduate Direct Subsidized and Unsubsidized Loans; 7.05% for Direct Unsubsidized Loans for graduate students; and 8.05% for Direct PLUS Loans.
• Subsidized options: If you have financial need, the government may offer you a subsidized loan, which means the government pays the interest while you’re in school at least half-time and for six months after you graduate.
• No credit checks for certain loans: You don’t need a credit check to qualify for Direct Subsidized or Unsubsidized Loans.
Federal Loan Programs to Consider After You Graduate
Once you graduate and need to begin paying back your federal student loans, the government offers a number of programs that can make repayment more manageable. Here’s a look at some of your options.
Federal Student Loan Repayment Plans
The Education Department offers a number of different repayment plans, including long-term plans that can last up to 30 years. You may be able to lower your monthly payment if you opt for a longer repayment term. Extending your repayment term generally means paying more in interest overall, though.
Fixed repayment plans include the Standard, Graduated, and Extended plans. Here’s a look at how they compare.
Fixed Repayment Plan
Eligible Loans
Monthly Payment Amount
Standard Plan
Direct Subsidized and Unsubsidized Loans; Subsidized and Unsubsidized Federal Stafford Loans; PLUS loans, Consolidation loans
Payments are a fixed amount that ensures your loans are paid off within 10 years (within 10 to 30 years for Consolidation Loans)
Graduated Plan
Direct Subsidized and Unsubsidized Loans; PLUS loans; Consolidation Loans
Payments start out lower and then increase, usually every two years. Payment amounts ensure you’ll pay off loans within 10 years (within 10 to 30 years for Consolidation Loans)
Extended Plan
To qualify, you must have more than $30,000 in outstanding Direct Loans (or FFEL Program loans)
Payments can be fixed or graduated and will ensure that your loans are paid off within 25 years
Income-Driven Repayment Plans
Income-driven repayment (IDR) plans aim to make student loan payments more manageable by tying them to the borrower’s income. They allow you to pay a percentage of your discretionary income toward federal loans for 20 to 25 years, at which point the remaining loan balances are forgiven.
The Saving on a Valuable Education (SAVE) Plan is the newest and one of the most affordable repayment plans for federal student loans. For some borrowers, payments can be as low as $0 per month.
Here’s a look at how the four IDR federal loan payment programs stack up.
Income-Driven Repayment Plan
Eligible Loan Types
Monthly Payment Amount
SAVE
Direct Subsidized and Unsubsidized Loans; Direct PLUS Loans (made to students); Direct Consolidation Loans (that do not include parent PLUS loans)
10% of discretionary income
PAYE
Direct Subsidized and Unsubsidized Loans; Direct PLUS Loans (made to students); Direct Consolidation Loans (that do not include parent PLUS loans)
10% of discretionary income but never more than what you would pay under the 10-year Standard Repayment Plan
IBR
Direct Subsidized and Unsubsidized Loans; Subsidized and Unsubsidized Federal Stafford Loans; Direct and FFEL PLUS Loans (made to students); Direct or FFEL Consolidation Loans (that do not include parent PLUS loans)
Either 10% or 15% of discretionary income but never more than what you would pay under the 10-year Standard Repayment Plan
ICR
Direct Subsidized and Unsubsidized Loans; Direct PLUS Loans (made to students); Direct Consolidation Loans
Either 20% of your discretionary income or the amount you would pay on a repayment plan with a fixed payment over 12 years, adjusted according to your income (whichever is lower)
Student Loan Forgiveness Programs
In addition to the loan forgiveness associated with IDR plans, the federal government offers other federal loan forgiveness programs, including Public Service Loan Forgiveness (PSLF), which is for public-sector workers. The PSLF program allows you not to repay the remaining balance on your Direct Loans as long as you’ve made the 120 qualifying monthly payments under an accepted repayment plan and worked for an eligible employer full-time.
There is also a separate forgiveness program just for teachers, as well as one borrowers with permanent disabilities.
Federal Student Loan Consolidation Program
If you have multiple federal student loans, you can consolidate them into a single new loan (called a Direct Consolidation Loan) with new repayment terms. This can simplify the repayment process, since you’ll only have one payment and one loan servicer to keep track of.
Federal loan consolidation also allows some borrowers (such as those with Federal Family Education or Perkins Loans) to access repayment and forgiveness programs that they otherwise are ineligible for.
The federal student loan consolidation program does not lower your interest rate, however. Your new fixed interest rate will be the weighted average of your previous rates, rounded up to the next one-eighth of 1%.
Your new loan term could range from 10 to 30 years, depending on your total student loan balance. If you extend your loan term, it can lower your monthly payments but the total amount of interest you’ll pay will increase.
It’s also important to note that when loans are consolidated, any unpaid interest is added to your principal balance. The combined amount will be your new loan’s principal balance. You’ll then pay interest on the new, higher balance. Depending on how much unpaid interest you have, consolidation can cost you more over the life of your loan.
Recommended: Student Loan Consolidation vs Refinancing
Factors to Evaluate Before Refinancing
Refinancing is the process of taking out a new student loan from a private lender (ideally with better rates and terms) and using it to pay off your existing federal and/or private student loans. Generally, refinancing only makes sense if you can qualify for a lower rate. Here are some things to consider before you explore refinancing your student loans.
Current Interest Rates and Loan Terms
Refinancing can potentially allow you to lower your monthly payment by getting a lower interest rate than what you currently have, extending your loan term, or both. Keep in mind, though, that lengthening your loan term may mean paying more in interest over the life of the loan.
Credit Score Requirements
Not every borrower is eligible for refinancing. To get approved, you typically need a credit score of at least 650. A score in the 700s, however, gives you a much better chance of qualifying.
Your credit score also helps determine your new interest rate. Generally, the better your credit score is, the more competitive your interest rate will be. If you can’t qualify for an attractive refinance on your own, you might want to recruit a cosigner who has excellent credit.
Potential Savings Through Refinancing
One of the main reasons people refinance their existing student loans is because they can find a lower interest rate through a new lender. This can help you save money, potentially thousands over the life of your loan. A lower rate can also help you pay off your loan faster, or lower the amount you pay each month.
While student loan interest rates have been on the rise in the last couple of years, you may still be able to do better if your financial situation has considerably improved since you originally took out your student loans or you have higher-interest federal student loans.
Impact on Loan Forgiveness Options
Refinancing federal loans makes them ineligible for federal forgiveness and protections. If you think you may benefit (or are currently working towards) public service, teacher, IDR, or other federal forgiveness program, it may not be a good idea to refinance your federal student loans. Doing so will bar you from getting your federal loans forgiven.
Refinancing also makes your loans ineligible for government deferment and forbearance programs, which allow you to temporarily postpone or reduce your federal student loan payments. However, many private lenders offer their own deferment and forbearance programs.
💡 Quick Tip: It might be beneficial to look for a refinancing lender that offers extras. SoFi members, for instance, can qualify for rate discounts and have access to career services, financial advisors, networking events, and more — at no extra cost.
The Takeaway
Federal loan programs, including loan consolidation, graduated repayment plans, income-driven repayment plans, and forgiveness programs can make repaying your federal student loans more manageable after you graduate.
If you have higher-interest graduate PLUS loans, Direct Unsubsidized Loans, and/or private loans, however, it can also be worth looking into private student loan refinancing.
Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.
With SoFi, refinancing is fast, easy, and all online. We offer competitive fixed and variable rates.
FAQ
Does it make sense to refinance student loans?
Refinancing student loans can make sense if you are able to qualify for a lower interest rate through a new lender. This can help you save money, potentially thousands over the life of your loan. A lower rate can also help you pay off your loan faster, or lower the amount you pay each month.
Keep in mind that refinancing federal student loans with a private lender means giving up federal protections and relief programs.
Under what circumstances would you want to consider refinancing a debt?
You might consider refinancing a debt if your financial situation has improved since you originally got the loan and can now qualify for a lower rate. Refinancing also allows you to extend your loan term, which can lower your payments. Keep in mind, however, that a longer term generally means paying more in overall interest.
Which is a downside of refinancing out of federal student loans?
The biggest downside of refinancing your federal student loans is forfeiting federal protections, such as income-driven repayment plans and loan forgiveness options.
Photo credit: iStock/Drazen Zigic
SoFi Student Loan Refinance If you are a federal student loan borrower, you should consider all of your repayment opportunities including the opportunity to refinance your student loan debt at a lower APR or to extend your term to achieve a lower monthly payment. Please note that once you refinance federal student loans you will no longer be eligible for current or future flexible payment options available to federal loan borrowers, including but not limited to income-based repayment plans or extended repayment plans.
SoFi Loan Products SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.
Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.
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It’s a common misconception that all debt is bad. Some forms of debt—such as student loans, mortgages, and auto loans—can help you improve your professional and personal life. But while debt can be useful, overspending while already in debt can lead to an unmanageable situation.
To find tips to ensure you aren’t adding unnecessarily to your debt or falling behind on payments, we asked Bob G. Wood—a professor of finance at the University of South Alabama’s Mitchell College of Business—to share his top debt-crushing strategies. These tips and ideas can help you gain lasting financial freedom.
Keep reading to learn how to get out of debt and stay there.
1. Avoid increasing what you owe on your credit cards
One of the first steps to getting out of debt is to stop adding to it. While credit cards are a helpful payment option (especially for unplanned expenses), continually building up a card balance that you can’t pay off every month can negatively impact your debt load and your credit score.
“A debt-averse individual pays the total balance on each credit card before the payment due date to avoid interest charges and late fees,” Wood explains. “This approach helps people avoid using the cards to buy things they cannot afford.”
2. Put some investments on hold
If you’re struggling to figure out how to pay off debt, you may want to put discretionary investments on hold until you’re debt-free. (Think: that $100 in crypto your buddy suggests you buy, or the IPO you’ve been reading about.) In some cases, paying off your debt faster will save you more money than your investments can earn. According to Wood, the exception to this rule is investing as a part of your retirement savings strategy, such as in a 401(k).
“I recommend continuing to fund retirement account investments, especially for those individuals with employer-provided accounts,” Wood says. “Many of these accounts provide a match for individual investments into the account, and that provides a 100% return on the individual’s contribution. Also, delaying retirement investment contributions can drastically reduce the future value of the account.”
3. Commit to a plan
While putting extra cash toward debt payments can help you make progress, having a steady plan is necessary to tackle debt efficiently. Wood shared the following steps consumers need to take when they’re budgeting to pay off debt:
Step 1. Differentiate between your needs and wants, and review your current expenses. “Be honest—upgrading to the latest cell phone model or adding items to an already full closet are more than likely wants rather than needs,” Wood says.
Step 2. Develop a realistic budget. Not sure how to budget to pay off debt? Be thoughtful when you create a budget to help keep your spending in check. This new budget should include a fixed monthly amount for debt repayment, beyond any monthly payments for student, auto, or home loans.
4. Choose the ‘snowball’ or the ‘avalanche’ style of debt reduction
When creating a plan to tackle your debt, you may consider the popular “debt snowball method,” which targets the smallest debt first. As soon as this first debt is satisfied, you focus on the next-lowest balance.
While seeing a debt of any size reduced to zero can be incredibly motivating, this approach may come with a cost. “Unfortunately, the strategy often results in more interest paid by the borrower,” Wood explains.
“As an alternative, the ‘debt avalanche method’ targets the highest interest debt first,” Wood explains. “By paying off the debt with the highest interest first, the borrower reduces the total amount of interest paid. Although this approach is more financially sound, it requires the borrower to focus on the long-term result and remain diligent in their payment plan.”
Note that with either of these approaches, staying current on all debt payments is important, meaning that you should pay at least the minimum amount due, while dedicating any extra contributions to the targeted debt.
5. Try to renegotiate your debt
One of the ways to pay off debt is to renegotiate it. While there are no guarantees that a lender will agree to negotiate the terms of your debt, you may have more luck if you’re a long-term customer with a history of on-time payments. In this case, a lender may be willing to waive fees, shift due dates, or even lower the interest rate. And these actions should not affect the individual’s credit rating, Wood notes.
Before committing to an arrangement, you should seek guidance from a professional about your specific situation, needs, and goals.
6. (Carefully) consider a balance transfer vs. debt consolidation loan
Transferring credit card debt to a new account has advantages, as many transfer offers may have an introductory period with an interest rate of 0%. A balance transfer can also reduce multiple payments to one, with a single payment date.
But keep an eye on your calendar so you’re aware of when the introductory period ends and the new interest rate begins.
He explains that debt consolidation is similar in concept, but these balances are typically rolled over into a personal loan for debt consolidation, a home equity loan, or a credit card with a lower interest rate (and concurrent lower payment).
7. Consider a rewards checking account
Looking to make the most of the cash you aren’t spending but still need access to? This is where a rewards checking account such as the Discover® Cashback Debit account can be handy when considering how to budget to pay off debt.
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A rewards checking account can assist consumers in managing their debt by offering perks such as cash back or interest rewards on certain transactions. Consumers can then take those earnings and put them toward debt payments as needed.
8. Make it a family affair
Borrowing money from a trusted family member can help you save a lot on interest, making it easier to get out of debt faster. Let’s say that loved ones lend you the money you need to pay off your high-interest debts in full. You can then focus on paying them back at a lower interest rate or with no interest at all—whatever you agree on.
Just ensure you and your loved ones are on the same page about what this repayment agreement will look like so you don’t strain any relationships.
9. Know when to seek professional help
There may come a point when you need to hire a professional to help with get out of debt planning. “An individual should seek debt counseling when the anxiety associated with the debt interferes with the person’s personal and professional life or when the minimum debt payments are not possible without sacrificing necessities,” Wood says.
“There are both for-profit firms and nonprofit counseling agencies available to help an individual through the process.” The Consumer Financial Protection Bureau offers advice and resources on how to select a reputable counselor.
Consider what strategies might work best for you
There are many different approaches you can implement to help you get debt-free faster. Take some time to devise a realistic plan to tackle your debt so you can pay it off for good and start making your money work for you.
When you’re paying off debt, every boost of extra cash can help. A Discover Cashback Debit Account can help you earn cash rewards on debit card purchases1 with no account fees.
Articles may contain information from third parties. The inclusion of such information does not imply an affiliation with the bank or bank sponsorship, endorsement, or verification regarding the third party or information.
1 On up to $3,000 in debit card purchases each month. See Deposit Account Agreement for details on transaction eligibility, limitations and terms.
Were the good old days really all that good? Sure, when mortgage rates were below 3%, it was a lot cheaper to purchase a house, but we were also in the middle of a global pandemic.
At the start of 2021, the average rate for a 30-year fixed mortgage was 2.65%, according to data from Freddie Mac. During the homebuying boom of 2020 and 2021, the number of borrowers taking out new mortgages reached a more than two-decade high.
Over the past two years, a combination of high mortgage rates, low housing inventory and sluggish wage growth has crippled affordability for homebuyers.
While many are holding out for mortgage rates to fall, it’s unlikely we’ll see 2% mortgage rates any time soon. In fact, experts hope we don’t.
A return to that kind of low-rate environment would indicate major problems in the economy, said Alex Thomas, senior research analyst at John Burns Research and Consulting.
Mortgage rates typically fall during a recession. But a recession also comes with widespread unemployment, increased debt, investment losses and overall financial instability.
In today’s housing market, homebuyers should have realistic expectations. Experts predict mortgage rates to inch closer to 6% by the end of the year as inflation cools and the Federal Reserve starts to cut interest rates. Record-low mortgage rates aren’t in the cards again, and that’s likely for the best.
Mortgage rates change every day. Experts recommend shopping around to make sure you’re getting the lowest rate. By entering your information below, you can get a custom quote from one of CNET’s partner lenders.
About these rates: Like CNET, Bankrate is owned by Red Ventures. This tool features partner rates from lenders that you can use when comparing multiple mortgage rates.
How did mortgage rates drop below 3% in the first place?
Economic uncertainty and market volatility — whether during an election cycle or a pandemic — impact the direction of mortgage rates. It’s often said that bad news for the economy is good news for mortgage rates, and vice versa.
A significant lever for mortgage rates is the federal funds rate, which the Fed keeps low when it needs to stimulate economic growth. For example, during the 2008 financial crisis, the Fed slashed that benchmark rate to zero to bolster the economy. When there were signs of recovery in 2015, the central bank started raising interest rates again, sending mortgage rates into the 4% to 5% range until 2020.
The COVID-19 pandemic sparked another economic crisis. To incentivize people to borrow and spend money — and avoid a prolonged recession — the Fed once again cut the federal funds rate to near zero and pumped money into the economy by purchasing government bonds and mortgage-backed securities. Mortgage interest rates fell quickly, bottoming out in the mid-2% range in 2021.
But the combination of supply shocks, record-low rates and an extreme increase in money supply from government stimulus helped send prices way up, according to Erin Sykes, chief economist at NestSeekers International.
In early 2022, the Fed had a new problem on its hands: inflation.
💰 Federal Reserve monetary policy
In a recession, the Federal Reserve tries to spur economic growth through quantitative easing, a monetary policy that consists of cutting the federal funds rate to encourage lending and borrowing to consumers, and increasing its purchase of government-backed bonds and mortgage-backed securities.
If the Fed needs to slow the economy down and reduce the money supply in financial markets, it does opposite: quantitative tightening. By increasing the federal funds rate and tapering its bond-buying programs, the central bank raises the cost of borrowing money, which puts upward pressure on longer-term interest rates, like 30-year fixed mortgage rates.
What caused mortgage rates to surge again?
With prices surging in 2022, the Fed’s main tool was to adjust interest rates, making credit more expensive and disincentivizing borrowing. As a result of a string of aggressive rate hikes, the federal funds rate went from near zero to a range of 5.25% to 5.5%, where it’s remained since last summer. Average mortgage rates skyrocketed, peaking past 8% last October.
Although inflation has gone down, the Fed isn’t ready to start lowering rates just yet. The central bank would like to see evidence of a weaker economy (including consistently lower inflation and higher unemployment) before making any adjustments to its monetary policy.
📈 How the Fed impacts mortgage rates
Though the Federal Reserve doesn’t directly set mortgage rates, it controls the federal funds rate, a short-term interest rate that determines what banks charge each other to borrow money. When the federal funds rate moves up, it impacts longer-term interest rates, like 30-year fixed mortgage rates, as banks raise interest rates on home loans to keep their profit margins intact.
Why won’t mortgage rates move toward 2% again?
Economists and housing market experts agree that mortgage rates will fall over the next several years, but not below 3%.
When mortgage rates hit their record lows just a few years ago, the federal funds rate was near zero. As the Fed starts cutting rates later this year, the plan is to do so slowly and incrementally. Barring another major economic shock, the Fed projects the federal funds rate will take only modest adjustments down.
In the most recent policy meeting, Fed Chair Jerome Powell remarked that the federal funds rate “will not go back down to the very low levels that we saw” during the financial crisis, suggesting that the economy can adapt to a more “neutral” benchmark rate range of between 2.4% to 3.8% in the long run, i.e., less tightening, but not too much easing from the current range of 5.25% to 5.5%.
The Fed would be forced to lower rates close to zero only if there were a dramatic economic shock, such as a pandemic or recession, said Selma Hepp, chief economist at CoreLogic. In that case, if the central bank started purchasing government bonds and mortgage-backed securities again, there’s a possibility mortgage rates could return to those record lows.
However, without such an upheaval, there’s a floor under how low mortgage rates will go, and it’s highly unlikely they’ll ever drop to their 2020-2021 levels.
“With the Federal Reserve ending quantitative easing and stepping out of the market for mortgage-backed securities, rates will settle at a much higher level,” said Matthew Walsh, housing economist at Moody’s Analytics.
Moody’s Analytics predicts mortgage rates will stabilize between 6% and 6.5% over the next few years. That’s high compared with the recent past, yet it’s a historically normal range for mortgage rates.
How can homebuyers adapt to higher mortgage rates?
The housing market is frustrating, but prospective homebuyers are starting to come to terms with this new reality. Following the pandemic, people are moving on with their lives, whether that’s building a family, relocating, downsizing or upgrading.
For some households, that means making room in their budget for a monthly mortgage payment at a 6% or 7% rate.
When you monitor mortgage rate movement, you’re usually looking at national averages determined by weekly rate information provided by lenders. While those rates give a picture of the “typical” mortgage rate, that’s not necessarily the rate you’ll get when applying for a mortgage.
It’s possible to get a better deal on your mortgage.
To qualify for a mortgage, most lenders require you to have a minimum credit score of 620, but lenders offer the lowest mortgage rates to consumers with excellent credit scores, around 740 and above.
You might also consider purchasing mortgage points, also known as discount points. This is an extra fee you pay upfront in exchange for a lower interest rate. Each mortgage point typically costs 1% of the purchase price of a home and will lower your mortgage rate by 0.25%.
A shorter-term loan like a 15-year or 10-year mortgage will have a lower interest rate than a 30-year fixed mortgage. Your monthly payments will be higher with a shorter-term loan because you’re paying the loan off in less time, but you’ll save big on interest.
Buying a home is likely the biggest transaction you’ll make in your lifetime. Regardless of the market, carefully assess your needs and what you can afford.
Borrowing money for home repairs and other projects this spring can be very expensive. For example, if you take on debt via a 24-month personal loan, you can expect to pay an average interest rate of 12.49%, according to the Federal Reserve. Credit cards charge even higher rates at an average of 21.47% currently.
One way to borrow money at a typically lower rate than credit cards or personal loans is to tap into your home equity with a home equity loan or home equity line of credit (HELOC). However, there are pros and cons to borrowing against your home equity to finance spring repairs, and you might find that certain situations make this financing more feasible than others.
Learn more about the best home equity loan rates you could qualify for here.
When to use home equity for spring repairs, according to experts
Tapping into your home equity can provide several benefits, like saving money on interest charges in the long run and improving your home. Some specific situations to consider using home equity for spring repairs include:
Lowering your taxes
If you can find a way to borrow against your home equity in a way that lowers your total tax liability more than the cost of borrowing, that could be worth it. Through 2025, interest on home equity loans and HELOCs may be deductible if used for making substantial improvements to your home, provided that you meet other stipulations.
“Whether you’re boosting potential resale value or enhancing your home, using home equity for repairs is a great choice, capitalizing on lower interest rates in comparison to unsecured consumer loans, and potential tax deductions,” says Kelly Miskunas, head of capital markets at Better.
That said, tax considerations are not one-size-fits-all.
“Remember to seek personalized tax advice tailored to your financial circumstances,” says Miskunas.
Compare today’s best home equity borrowing options online now.
Improving energy efficiency
Home equity funds could also be beneficial when put toward making energy-efficient upgrades to your home. Doing so could help you lower monthly utility bills, says Karl Jacob, CEO at LoanSnap.
Also, energy efficiency upgrades like adding solar panels and batteries “have substantial tax rebates,” says Jacob. “It’s definitely worth checking the federal and state rules on this.”
Doing important maintenance
Your home equity can also be useful for affording maintenance issues that save you money or boost your home’s value overall.
“Ignoring items that need repair can turn a small repair into a major, costly project,” says Michael Micheletti, chief communications officer at Unlock Technologies.
Home equity financing can also help you afford the required maintenance.
“Taking care of needed repairs also is part of most homeowners’ association regulations; many will impose fees if repairs are not attended to in a timely manner,” says Michaeletti.
When to not use home equity for spring repairs, according to experts
While using home equity for spring repairs is often helpful, not every homeowner benefits from this borrowing. Consider alternatives when:
You don’t have a clear repayment plan
Tapping into your home equity might help you afford the upfront cost of home renovations, but if you don’t have a clear repayment plan, you’re risking a lot.
“When you get a home equity loan or HELOC, it’s important to remember that the loan you’re obtaining is secured by your home as collateral. That means if you do not make timely payments on your loan, the lender has the right to foreclose,” says Miskunas.
So, make sure you know what you’re getting into ahead of time.
“If you don’t have a plan to repay the loan, don’t take the loan,” says Jacob.
You have significant high-interest debt
If you have a lot of existing high-interest debt, you might be better off taking care of that first, before making repairs or upgrades to your home. Rather, you might use home equity financing for debt consolidation instead, which could lower your monthly payments.
“If you have a lot of high-interest debt, like credit cards, use the loan to pay those off before you consider home improvements. We generally advise that you first reduce your debt payments as much as possible since you can then use the extra cash to make the improvements and save money for the long run,” says Jacob.
You’re planning to move soon
If you’re not going to keep your home for a while, it might not be worth going through the cost and effort of taking out a home equity loan and living through home improvement projects. Instead, you might let the next buyer deal with repairs.
“For most repairs, the price can be negotiated into the sale of the home,” notes Micheletti.
The bottom line
Tapping into your home equity can be a great way for many homeowners to afford home improvements this spring, and there are several ways to go about this borrowing. While home equity loans and HELOCs are popular options, some homeowners find that a cash-out refinance works best, such as if you have the ability to lower your overall mortgage rate. Also, some seniors might prefer taking out a reverse mortgage instead so they don’t have to pay back the loan while living in the home.
That said, borrowing against your home equity isn’t without risk. You want to make sure you can afford repayments or understand that it can affect your proceeds if selling your home — or if you move out, in the case of reverse mortgages.
There’s a reason so many people have been struggling to purchase a home this year. Not only are housing prices elevated as a result of low inventory, but mortgages are expensive to sign.
As of this writing, the average mortgage rate on a 30-year loan is 6.82%, according to Freddie Mac. But rates have fluctuated a bit since the start of the year, and they’ll likely continue to do so based on general market conditions.
Meanwhile, most mortgage experts expect rates to cool later in the year. But how low will they go? That’s the big question.
Federal Reserve actions could lower borrowing costs for home buyers
The Federal Reserve raised interest rates 11 times between 2022 and 2023 to help slow the pace of inflation. While the Fed’s actions don’t always completely correlate to movement in mortgage rates, they have the potential to influence them. As such, it’s not a big surprise that mortgages are currently expensive to sign.
There’s some good news, though. Despite the fact that inflation remains stubbornly elevated at over 3%, which is above the 2% level the Fed is targeting, it’s cooled nicely since 2022. As such, the Fed still thinks it can move forward with three interest rate cuts in 2024, the first of which could come within months.
What this means is that mortgage rates could fall quite a bit between now and the end of the year. But it’s tough to get a handle on how low they’ll go.
More: Check out our picks for the best mortgage lenders
Is it conceivable that mortgage rates will drop to about 6%? Yes. Whether they’ll go lower is the big question, and that’s a hard one to answer right now.
In January, the National Association of Realtors projected that mortgage rates would fall to 6.3% by the fourth quarter of the year. But if rates fall to 6.3% at the start of that quarter, they may be closer to the 6% mark by the end of it.
How to lock in the most competitive mortgage rate you can
It’s hard to know exactly how low mortgage rates will go in 2024. So instead of fixating on that, try to focus on steps you can take to set yourself up for a more attractive mortgage rate.
For one thing, try boosting your credit score. You can do so by paying bills on time and shedding some credit card debt. Checking your credit report for errors is also a great idea.
Also, try to work on reducing your debt-to-income ratio. That measures the percentage of your income that’s allocated toward existing debt payments. Paying off some credit card debt could help in this regard, too.
Finally, be prepared to shop around. You never know when one lender might have a better rate to offer you than another.
It’s fair to assume that mortgages will be less expensive to sign by the time 2024 gets close to wrapping up. But how much less expensive is a question that remains tough to answer.
Average mortgage rates inched lower yesterday. But all that did was wipe out last Friday’s similarly tiny rise.
Earlier this morning, markets were signaling that mortgage rates today might barely budge. However, these early mini-trends often alter direction or speed as the hours pass.
Current mortgage and refinance rates
Find your lowest rate. Start here
Program
Mortgage Rate
APR*
Change
Conventional 30-year fixed
7.302%
7.353%
+0.01
Conventional 15-year fixed
6.757%
6.836%
+0.01
30-year fixed FHA
7.064%
7.111%
-0.07
5/1 ARM Conventional
6.888%
8.036%
+0.12
Conventional 20-year fixed
7.199%
7.257%
+0.05
Conventional 10-year fixed
6.663%
6.737%
+0.06
30-year fixed VA
7.292%
7.332%
+0.01
Rates are provided by our partner network, and may not reflect the market. Your rate might be different. Click here for a personalized rate quote. See our rate assumptions See our rate assumptions here.
Should you lock your mortgage rate today?
This morning’s Financial Times reports, “While the base case remains a reduction in borrowing costs, the options market shows a 20% probability of an increase.” That means most investors think the Federal Reserve will cut general interest rates this year, but they reckon there’s a 20% chance of the central bank actually hiking them. That’s new and scary.
Although the Fed doesn’t directly determine mortgage rates it has a huge influence on the bond market that does. And I very much doubt mortgage rates will fall consistently before the Fed signals that a cut in general interest rates is imminent. And a Fed rate hike is likely to send mortgage rates much higher: maybe back up to 8% or beyond.
So my personal rate lock recommendations remain:
LOCK if closing in 7 days
LOCK if closing in 15 days
LOCK if closing in 30 days
LOCK if closing in 45 days
LOCKif closing in 60days
However, with so much uncertainty at the moment, your instincts could easily turn out to be as good as mine — or better. So, let your gut and your own tolerance for risk help guide you.
>Related: 7 Tips to get the best refinance rate
Market data affecting today’s mortgage rates
Here’s a snapshot of the state of play this morning at about 9:50 a.m. (ET). The data are mostly compared with roughly the same time the business day before, so much of the movement will often have happened in the previous session. The numbers are:
The yield on 10-year Treasury notes edged down to 4.6% from 4.64%. (Good for mortgage rates.) More than any other market, mortgage rates typically tend to follow these particular Treasury bond yields
Major stock indexes were rising this morning. (Bad for mortgage rates.) When investors buy shares, they’re often selling bonds, which pushes those prices down and increases yields and mortgage rates. The opposite may happen when indexes are lower. But this is an imperfect relationship
Oil prices decreased to $81.59 from $82.06 a barrel. (Good for mortgage rates*.) Energy prices play a prominent role in creating inflation and also point to future economic activity
Goldprices fell to $2,333 from $2,350 an ounce. (Neutral for mortgage rates*.) It is generally better for rates when gold prices rise and worse when they fall. Because gold tends to rise when investors worry about the economy.
CNN Business Fear & Greed index — climbed to 40 from 33 out of 100. (Bad for mortgage rates.) “Greedy” investors push bond prices down (and interest rates up) as they leave the bond market and move into stocks, while “fearful” investors do the opposite. So, lower readings are often better than higher ones
*A movement of less than $20 on gold prices or 40 cents on oil ones is a change of 1% or less. So we only count meaningful differences as good or bad for mortgage rates.
Caveats about markets and rates
Before the pandemic, post-pandemic upheavals, and war in Ukraine, you could look at the above figures and make a pretty good guess about what would happen to mortgage rates that day. But that’s no longer the case. We still make daily calls. And are usually right. But our record for accuracy won’t achieve its former high levels until things settle down.
So, use markets only as a rough guide. Because they have to be exceptionally strong or weak to rely on them. But, with that caveat, mortgage rates today look likely to be unchanged or close to unchanged. However, be aware that “intraday swings” (when rates change speed or direction during the day) are a common feature right now.
Find your lowest rate. Start here
What’s driving mortgage rates today?
Today
This morning’s two April purchasing managers’ indexes (PMIs) will likely be good for mortgage rates. These “flashes” (initial readings and subject to revision) are both from S&P.
Here are this morning’s actual numbers in bold, alongside the prepublication consensus forecasts, according to MarketWatch, together with the March actual figures:
Services PMI — 50.9 actual; 52 expected; 51.7 in March
Manufacturing PMI — 51.1 actual; 52 expected; 51.9 in March
You can see that the PMIs were worse than expected, which is typically good news for mortgage rates.
Tomorrow
Tomorrow’s durable goods orders for March rarely affect mortgage rates. And they’d need to contain some pretty shocking data to do so tomorrow.
Markets are expecting those orders to have risen by 2.6% in March compared to a 1.3% increase in February. They’ll probably need to be significantly higher than 2.% to exert upward pressure on mortgage rates and appreciably lower to push them downward.
The rest of this week
Nothing has changed since yesterday concerning economic reports due on Thursday and Friday. So, I’ll repeat what I wrote yesterday:
We’re due the first reading of gross domestic product (GDP) for the January-March quarter on Thursday. And that could have a larger effect than PMIs and durable goods orders, depending on the gap between expectations and actuals.
But Friday’s personal consumption expenditures (PCE) price index for March is this week’s star report. That’s the Federal Reserve’s favorite gauge of inflation. And it could certainly affect mortgage rates, possibly appreciably.
The next meeting of the Fed’s rate-setting committee is scheduled to start on Apr. 30 and last two days. So, the PCE price index will be the last inflation report it sees before making decisions.
And index that shows inflation cooling could change the mood at that meeting. True, it’s vanishingly unlikely that a cut to general interest rates will be unveiled on May 1 no matter what.
But a PCE price index that shows inflation cooling could help the Fed to move forward with cuts earlier than expected, which should cause mortgage rates to fall. Unfortunately, one that suggests inflation remains hot or is getting hotter could send those rates higher.
I’ll brief you more fully on each potentially significant report on the day before it’s published.
Don’t forget you can always learn more about what’s driving mortgage rates in the most recent weekend edition of this daily report. These provide a more detailed analysis of what’s happening. They are published each Saturday morning soon after 10 a.m. (ET) and include a preview of the following week.
Recent trends
According to Freddie Mac’s archives, the weekly all-time lowest rate for 30-year, fixed-rate mortgages was set on Jan. 7, 2021, when it stood at 2.65%. The weekly all-time high was 18.63% on Sep. 10, 1981.
Freddie’s Apr. 18 report put that same weekly average at 7.1%, up from the previous week’s 6.88%. But note that Freddie’s data are almost always out of date by the time it announces its weekly figures.
Expert forecasts for mortgage rates
Looking further ahead, Fannie Mae and the Mortgage Bankers Association (MBA) each has a team of economists dedicated to monitoring and forecasting what will happen to the economy, the housing sector and mortgage rates.
And here are their rate forecasts for the four quarters of 2024 (Q1/24, Q2/24 Q3/24 and Q4/24).
The numbers in the table below are for 30-year, fixed-rate mortgages. Fannie’s were updated on Mar. 19 and the MBA’s on Apr. 18.
Forecaster
Q1/24
Q2/24
Q3/24
Q4/24
Fannie Mae
6.7%
6.7%
6.6%
6.4%
MBA
6.8%
6.7%
6.6%
6.4%
Of course, given so many unknowables, both these forecasts might be even more speculative than usual. And their past record for accuracy hasn’t been wildly impressive.
Important notes on today’s mortgage rates
Here are some things you need to know:
Typically, mortgage rates go up when the economy’s doing well and down when it’s in trouble. But there are exceptions. Read ‘How mortgage rates are determined and why you should care’
Only “top-tier” borrowers (with stellar credit scores, big down payments, and very healthy finances) get the ultralow mortgage rates you’ll see advertised
Lenders vary. Yours may or may not follow the crowd when it comes to daily rate movements — though they all usually follow the broader trend over time
When daily rate changes are small, some lenders will adjust closing costs and leave their rate cards the same
Refinance rates are typically close to those for purchases.
A lot is going on at the moment. And nobody can claim to know with certainty what will happen to mortgage rates in the coming hours, days, weeks or months.
Find your lowest mortgage rate today
You should comparison shop widely, no matter what sort of mortgage you want. Federal regulator the Consumer Financial Protection Bureau found in May 2023:
“Mortgage borrowers are paying around $100 a month more depending on which lender they choose, for the same type of loan and the same consumer characteristics (such as credit score and down payment).”
In other words, over the lifetime of a 30-year loan, homebuyers who don’t bother to get quotes from multiple lenders risk losing an average of $36,000. What could you do with that sort of money?
Verify your new rate
Mortgage rate methodology
The Mortgage Reports receives rates based on selected criteria from multiple lending partners each day. We arrive at an average rate and APR for each loan type to display in our chart. Because we average an array of rates, it gives you a better idea of what you might find in the marketplace. Furthermore, we average rates for the same loan types. For example, FHA fixed with FHA fixed. The end result is a good snapshot of daily rates and how they change over time.
How your mortgage interest rate is determined
Mortgage and refinance rates vary a lot depending on each borrower’s unique situation.
Factors that determine your mortgage interest rate include:
Overall strength of the economy — A strong economy usually means higher rates, while a weaker one can push current mortgage rates down to promote borrowing
Lender capacity — When a lender is very busy, it will increase rates to deter new business and give its loan officers some breathing room
Property type (condo, single-family, town house, etc.) — A primary residence, meaning a home you plan to live in full time, will have a lower interest rate. Investment properties, second homes, and vacation homes have higher mortgage rates
Loan-to-value ratio (determined by your down payment) — Your loan-to-value ratio (LTV) compares your loan amount to the value of the home. A lower LTV, meaning a bigger down payment, gets you a lower mortgage rate
Debt-To-Income ratio — This number compares your total monthly debts to your pretax income. The more debt you currently have, the less room you’ll have in your budget for a mortgage payment
Loan term — Loans with a shorter term (like a 15-year mortgage) typically have lower rates than a 30-year loan term
Borrower’s credit score — Typically the higher your credit score is, the lower your mortgage rate, and vice versa
Mortgage discount points — Borrowers have the option to buy discount points or ‘mortgage points’ at closing. These let you pay money upfront to lower your interest rate
Remember, every mortgage lender weighs these factors a little differently.
To find the best rate for your situation, you’ll want to get personalized estimates from a few different lenders.
Verify your new rate. Start here
Are refinance rates the same as mortgage rates?
Rates for a home purchase and mortgage refinance are often similar.
However, some lenders will charge more for a refinance under certain circumstances.
Typically when rates fall, homeowners rush to refinance. They see an opportunity to lock in a lower rate and payment for the rest of their loan.
This creates a tidal wave of new work for mortgage lenders.
Unfortunately, some lenders don’t have the capacity or crew to process a large number of refinance loan applications.
In this case, a lender might raise its rates to deter new business and give loan officers time to process loans currently in the pipeline.
Also, cashing out equity can result in a higher rate when refinancing.
Cash-out refinances pose a greater risk for mortgage lenders, so they’re often priced higher than new home purchases and rate-term refinances.
Check your refinance rates today. Start here
How to get the lowest mortgage or refinance rate
Since rates can vary, always shop around when buying a house or refinancing a mortgage.
Comparison shopping can potentially save thousands, even tens of thousands of dollars over the life of your loan.
Here are a few tips to keep in mind:
1. Get multiple quotes
Many borrowers make the mistake of accepting the first mortgage or refinance offer they receive.
Some simply go with the bank they use for checking and savings since that can seem easiest.
However, your bank might not offer the best mortgage deal for you. And if you’re refinancing, your financial situation may have changed enough that your current lender is no longer your best bet.
So get multiple quotes from at least three different lenders to find the right one for you.
2. Compare Loan Estimates
When shopping for a mortgage or refinance, lenders will provide a Loan Estimate that breaks down important costs associated with the loan.
You’ll want to read these Loan Estimates carefully and compare costs and fees line-by-line, including:
Interest rate
Annual percentage rate (APR)
Monthly mortgage payment
Loan origination fees
Rate lock fees
Closing costs
Remember, the lowest interest rate isn’t always the best deal.
Annual percentage rate (APR) can help you compare the ‘real’ cost of two loans. It estimates your total yearly cost including interest and fees.
Also, pay close attention to your closing costs.
Some lenders may bring their rates down by charging more upfront via discount points. These can add thousands to your out-of-pocket costs.
3. Negotiate your mortgage rate
You can also negotiate your mortgage rate to get a better deal.
Let’s say you get loan estimates from two lenders. Lender A offers the better rate, but you prefer your loan terms from Lender B. Talk to Lender B and see if they can beat the former’s pricing.
You might be surprised to find that a lender is willing to give you a lower interest rate in order to keep your business.
And if they’re not, keep shopping — there’s a good chance someone will.
Fixed-rate mortgage vs. adjustable-rate mortgage: Which is right for you?
Mortgage borrowers can choose between a fixed-rate mortgage and an adjustable-rate mortgage (ARM).
Fixed-rate mortgages (FRMs) have interest rates that never change unless you decide to refinance. This results in predictable monthly payments and stability over the life of your loan.
Adjustable-rate loans have a low interest rate that’s fixed for a set number of years (typically five or seven). After the initial fixed-rate period, the interest rate adjusts every year based on market conditions.
With each rate adjustment, a borrower’s mortgage rate can either increase, decrease, or stay the same. These loans are unpredictable since monthly payments can change each year.
Adjustable-rate mortgages are fitting for borrowers who expect to move before their first rate adjustment, or who can afford a higher future payment.
In most other cases, a fixed-rate mortgage is typically the safer and better choice.
Remember, if rates drop sharply, you are free to refinance and lock in a lower rate and payment later on.
How your credit score affects your mortgage rate
You don’t need a high credit score to qualify for a home purchase or refinance, but your credit score will affect your rate.
This is because credit history determines risk level.
Historically speaking, borrowers with higher credit scores are less likely to default on their mortgages, so they qualify for lower rates.
So, for the best rate, aim for a credit score of 720 or higher.
Mortgage programs that don’t require a high score include:
Conventional home loans — minimum 620 credit score
FHA loans — minimum 500 credit score (with a 10% down payment) or 580 (with a 3.5% down payment)
VA loans — no minimum credit score, but 620 is common
USDA loans — minimum 640 credit score
Ideally, you want to check your credit report and score at least 6 months before applying for a mortgage. This gives you time to sort out any errors and make sure your score is as high as possible.
If you’re ready to apply now, it’s still worth checking so you have a good idea of what loan programs you might qualify for and how your score will affect your rate.
You can get your credit report from AnnualCreditReport.com and your score from MyFico.com.
How big of a down payment do I need?
Nowadays, mortgage programs don’t require the conventional 20 percent down.
Indeed, first-time home buyers put only 6 percent down on average.
Down payment minimums vary depending on the loan program. For example:
Conventional home loans require a down payment between 3% and 5%
FHA loans require 3.5% down
VA and USDA loans allow zero down payment
Jumbo loans typically require at least 5% to 10% down
Keep in mind, a higher down payment reduces your risk as a borrower and helps you negotiate a better mortgage rate.
If you are able to make a 20 percent down payment, you can avoid paying for mortgage insurance.
This is an added cost paid by the borrower, which protects their lender in case of default or foreclosure.
But a big down payment is not required.
For many people, it makes sense to make a smaller down payment in order to buy a house sooner and start building home equity.
Verify your new rate. Start here
Choosing the right type of home loan
No two mortgage loans are alike, so it’s important to know your options and choose the right type of mortgage.
The five main types of mortgages include:
Fixed-rate mortgage (FRM)
Your interest rate remains the same over the life of the loan. This is a good option for borrowers who expect to live in their homes long-term.
The most popular loan option is the 30-year mortgage, but 15- and 20-year terms are also commonly available.
Adjustable-rate mortgage (ARM)
Adjustable-rate loans have a fixed interest rate for the first few years. Then, your mortgage rate resets every year.
Your rate and payment can rise or fall annually depending on how the broader interest rate trends.
ARMs are ideal for borrowers who expect to move prior to their first rate adjustment (usually in 5 or 7 years).
For those who plan to stay in their home long-term, a fixed-rate mortgage is typically recommended.
Jumbo mortgage
A jumbo loan is a mortgage that exceeds the conforming loan limit set by Fannie Mae and Freddie Mac.
In 2023, the conforming loan limit is $726,200 in most areas.
Jumbo loans are perfect for borrowers who need a larger loan to purchase a high-priced property, especially in big cities with high real estate values.
FHA mortgage
A government loan backed by the Federal Housing Administration for low- to moderate-income borrowers. FHA loans feature low credit score and down payment requirements.
VA mortgage
A government loan backed by the Department of Veterans Affairs. To be eligible, you must be active-duty military, a veteran, a Reservist or National Guard service member, or an eligible spouse.
VA loans allow no down payment and have exceptionally low mortgage rates.
USDA mortgage
USDA loans are a government program backed by the U.S. Department of Agriculture. They offer a no-down-payment solution for borrowers who purchase real estate in an eligible rural area. To qualify, your income must be at or below the local median.
Bank statement loan
Borrowers can qualify for a mortgage without tax returns, using their personal or business bank account as evidence of their financial circumstances. This is an option for self-employed or seasonally-employed borrowers.
Portfolio/Non-QM loan
These are mortgages that lenders don’t sell on the secondary mortgage market. And this gives lenders the flexibility to set their own guidelines.
Non-QM loans may have lower credit score requirements or offer low-down-payment options without mortgage insurance.
Choosing the right mortgage lender
The lender or loan program that’s right for one person might not be right for another.
Explore your options and then pick a loan based on your credit score, down payment, and financial goals, as well as local home prices.
Whether you’re getting a mortgage for a home purchase or a refinance, always shop around and compare rates and terms.
Typically, it only takes a few hours to get quotes from multiple lenders. And it could save you thousands in the long run.
Time to make a move? Let us find the right mortgage for you
Current mortgage rates methodology
We receive current mortgage rates each day from a network of mortgage lenders that offer home purchase and refinance loans. Those mortgage rates shown here are based on sample borrower profiles that vary by loan type. See our full loan assumptions here.
When it comes to borrowing money, building up your emergency fund, and performing financial transactions, you have more options than ever before. You can open an account with a traditional bank, set up an online bank account, or choose a neighborhood credit union. Best of all, you can have accounts with multiple institutions, maximizing convenience.
As you’re reviewing your options, you may see some claims that credit unions are better than banks. There’s no one-size-fits-all financial institution that works for every consumer on the planet, but there are some reasons you might want to choose a credit union over a brick-and-mortar or online bank.
Why is a credit union better than a bank for some people? Get the answer to this question, plus an overview of how credit unions work.
What Is a Credit Union?
A credit union is a nonprofit organization that provides a variety of financial services. Like banks, credit unions are heavily regulated financial institutions. They typically offer the following products and services:
Checking accounts. A checking account is a type of deposit account. Once you deposit money, you can spend it by writing checks, using your debit card, or making online transfers.
Savings accounts. Savings accounts make it easier to put away money for a rainy day. If you have an active account, you can deposit money and earn interest on it.
Certificates of deposit. A certificate of deposit, commonly known as a CD, is a special type of savings account. When you open a CD, you agree to keep your money in it for a certain period of time. In exchange, the bank pays a higher interest rate than you can get with a standard savings account.
Retirement accounts. Many credit unions offer IRAs and other retirement accounts, making it easier to save for the future.
Auto loans. If you don’t have enough cash on hand to buy a car, you can take out an auto loan from your credit union. An auto loan is a type of installment loan, which means you borrow the money and pay it back in equal monthly installments. The lender earns money by charging interest on the loan.
Mortgages. Most people don’t have hundreds of thousands of dollars in cash to buy a home. If you belong to a credit union, you may be able to take out a home loan. Some loans have fixed interest rates, while others have adjustable rates, giving you more flexibility.
Personal loans. If you need a loan to consolidate your debts, do expensive home repairs, pay for a wedding, or cover other major expenses, you may be able to take out a personal loan from a credit union. With a personal loan, you borrow a certain amount of money and pay it back in monthly installments.
Credit cards. Many credit unions also offer credit cards, which give you access to revolving credit. You use each card to make purchases and then pay back what you borrowed over time. If you don’t pay your full balance each month, you must make a minimum payment to keep your account in good standing.
Banks vs. Credit Unions: Major Differences
One of the biggest differences between banks and credit unions is that credit unions are nonprofit organizations owned by their members. In contrast, a bank is a for-profit institution owned by a group of shareholders.
Nonprofit and for-profit organizations have different purposes. Due to their nonprofit status, credit unions have cooperative structures. Board members and employees are concerned with the financial well-being of all members. Credit unions also have strong community roots.
The main purpose of a for-profit bank is to make money for shareholders. When there’s a profit motive in place, employees and board members tend to make decisions based on what’s best for shareholders instead of what’s best for customers or communities. For example, employees at Wells Fargo opened thousands of fraudulent accounts to boost the bank’s bottom line, hurting customers in the process.
Membership Requirements
Another major difference between banks and credit unions is that credit unions have strict membership requirements. Banks want to make as much money as possible, so they tend to offer accounts to anyone who meets some basic criteria. For example, a bank may open a checking account for any adult who doesn’t have a history of writing bad checks.
Credit unions are member-owned, so they have additional requirements. For example, some credit unions require their members to work for the federal government. Others are designed for members of the military or people who live in a specific geographic area. If you don’t meet the membership requirements, you won’t be able to open an account.
Banks and credit unions are both subject to federal regulation, but they’re not regulated by the same agencies. In the United States, the Office of the Comptroller of the Currency charters all banks and monitors their activities. The National Credit Union Administration oversees credit unions.
Both agencies work to ensure consumers receive fair treatment. Federal regulations also protect bank and credit union customers against deceptive business practices, giving you extra peace of mind.
Why Is a Credit Union Better Than a Bank for Some Consumers?
So, why is a credit union better than a bank in some cases? One of the main benefits is that credit unions operate for the good of their members. If you’re invested in the success of your community, joining a credit union can help you contribute to local development.
Credit unions also tend to offer slightly higher interest rates on certain savings and investment products. As of December 2023, credit unions were paying 2.93% on a five-year CD with a $10,000 deposit. In contrast, traditional banks were only paying 2.02%.
In some cases, a credit union also charges lower interest rates on credit cards and loans. The lower your rate, the less you pay in interest over time. At the end of 2023, credit unions charged an average of 12.72% on credit cards, while banks averaged 15%.
If you join a credit union, you may even save money on fees. Traditional banks need to maximize their profits, so they often charge monthly maintenance fees and fees for accessing certain services. You may also have to meet minimum daily balance requirements to avoid additional service charges.
Many credit unions charge no monthly service fees and have no minimum balance requirements. If you have to make a deposit to open your account, the minimum deposit may be just a few dollars. Credit unions may also offer free checks, free mobile banking, and other free services to their members.
Credit Unions vs. Banks: The Bottom Line
Banks and credit unions both have their place in the financial world. If you’re looking for personalized service, lower fees, and better interest rates, consider joining a credit union. You can always set up a traditional bank account if you want to access additional services.
To learn more about financial matters, check out Credit.com’s ultimate guide to personal finance.
Our goal here at Credible Operations, Inc., NMLS Number 1681276, referred to as “Credible” below, is to give you the tools and confidence you need to improve your finances. Although we do promote products from our partner lenders who compensate us for our services, all opinions are our own.
Home equity loan
Home equity line of credit (HELOC)
Interest rate
Fixed
Variable
Monthly payment amount
Fixed
Variable
Closing costs and fees
Yes
Yes, might be lower than other loan types
Repayment period
Typically 5-30 years
Typically 10-20 years
FAQ
What is a rate lock?
Interest rates on mortgages fluctuate all the time, but a rate lock allows you to lock in your current rate for a set amount of time. This ensures you get the rate you want as you complete the homebuying process.
What are mortgage points?
Mortgage points are a type of prepaid interest that you can pay upfront — often as part of your closing costs — for a lower overall interest rate. This can lower your APR and monthly payments.
What are closing costs?
Closing costs are the fees you, as the buyer, need to pay before getting a loan. Common fees include attorney fees, home appraisal fees, origination fees, and application fees.
If you’re trying to find the right mortgage rate, consider using Credible. You can use Credible’s free online tool to easily compare multiple lenders and see prequalified rates in just a few minutes.
A lower credit score doesn’t necessarily mean a lender will deny you a home equity loan. It does mean the loan will be more expensive, as you won’t get the lowest interest rate.
It’s possible to get a home equity loan with a fair credit score — as low as 620 — as long as other requirements around debt, equity and income are met.
Strategies for getting a loan despite your bad credit include taking on a co-signer, applying to a place where you currently bank, and writing a letter of explanation to the lender.
Alternatives to a home equity loan include personal loans, cash-out refinances, reverse mortgages and shared equity agreements.
Can you get a home equity loan with bad credit?
Yes, you can. A lower credit score doesn’t necessarily mean a lender will deny you a home equity loan. Some home equity lenders allow for FICO scores in the “fair” range (the lower 600s) as long as you meet other requirements around debt, equity and income.
That’s not to say it’ll be easy: Lenders tend to be stringent, even more so than they are with mortgages. Still, it’s not impossible. Here’s how to get a home equity loan (even) with bad credit.
Requirements for home equity loans
Not all home equity lenders have the exact same borrowing criteria, of course. Still, general guidelines do exist. Typical requirements for home equity loan applicants include:
A minimum credit score of 620
At least 15 percent to 20 percent equity in your home
A maximum debt-to-income (DTI) ratio of 43 percent, or up to 50 percent in some cases
On-time mortgage payment history
Stable employment and income
To learn the requirements for a home equity loan with a specific lender, you’ll need to do some research online or contact a loan officer directly. If you aren’t ready to apply for the loan just yet, ask for a no-credit check prequalification to avoid having the loan inquiry affect your credit score.
What are “good” and “bad” scores for home equity loans?
First, let’s define our terms. Here’s how FICO — the most popular credit scoring model — categorizes different scores:
Score
Classification
Source: MyFico.com
300-579
Poor
580-669
Fair
670-739
Good
740-799
Very Good
800-850
Excellent
When it comes to home equity loans, lenders set a high bar for creditworthiness — higher, even, than mortgages. That’s because they are considered riskier than mortgages: You, the applicant, are already carrying a big debt load. Should you default and your home get seized, the home equity loan — as a “second lien” — only gets paid after the primary (the original) mortgage.
Furthermore, home equity loans don’t have government backing, like some mortgages do. The lender bears all the risk.
So home equity lenders set stricter criteria, demanding scores squarely in the “fair” range. A score in the 500s – good enough for an FHA mortgage — will have a tough time qualifying for a home equity loan. Some lenders have loosened their standards of late and are approving applicants with scores as low as 620. But a “good” score, preferably above 700, remains the threshold for many institutions. It can vary even within one lender, depending on factors like the loan amount or other loan terms.
And of course — as with any loan — the lower your credit score, the less likely you will qualify for the best interest rates.
How to apply for a bad credit home equity loan
Before applying for a home equity loan, remember that it’s not just a question of getting the financing, but also how you can overcome a lower credit score to get the best possible rate. Here are some steps to take:
1. Check your credit report
While it’s possible to get a home equity loan with bad credit, it’s still wise to do all you can to improve your score before you apply (more on that below). A better credit score gets you a better rate. It can also help you get a bigger loan (up to the tappable amount of your equity, of course).
Check your credit reports at AnnualCreditReport.com to get a sense of where you stand. If there are any errors, like incorrect contact information, contact the credit bureau — Equifax, Experian or TransUnion — to get it updated as soon as possible.
2. Determine your equity level
To qualify for a home equity loan, lenders typically require at least 15 percent or 20 percent equity. The amount of equity you have, your home’s appraised value and combined loan-to-value (CLTV) ratio help determine how much you can borrow.
Home Equity
Bankrate’s home equity loan calculator can quickly estimate your potential home equity loan amount.
To estimate your home’s equity, take the value of your home and subtract the balance left on your mortgage. While lenders will only consider the official appraised value of your home when determining how much you can borrow, you can get an idea of your home’s value through Bankrate or a real estate listing portal or brokerage. Let’s say your home is worth $420,000 and you have $250,000 to pay on your mortgage:
$420,000 – $250,000 = $170,000
In this example, you’d have $170,000 in home equity. That doesn’t mean you can borrow $170,000, however. If the lender requires you to maintain at least 20 percent equity, you’d need to preserve $84,000 ($420,000 * 0.20). That leaves you with a home equity loan of up to $86,000 ($170,000 – $84,000).
Say you want to add a $60,000 home equity loan to the mix. That would increase your total mortgage debt — for both your first mortgage and the home equity loan — from $250,000 to $310,000.
That 20 percent equity requirement also means you’d need a CLTV ratio of 80 percent or lower. To calculate your CLTV ratio, divide the total mortgage debt ($310,000) by the value of your home ($420,000):
($250,000 + $60,000) / $420,000 = 73.8%
In this example, you’d be under the lender’s 80 percent CLTV requirement.
3. Find out your DTI ratio
The DTI ratio is a measure lenders use to determine whether you can reasonably afford to take on more debt. To calculate your DTI ratio, simply divide your monthly debt payments by your gross monthly income. For example, say you bring in $6,000 a month in income and have a $2,200 monthly mortgage payment and a $110 monthly student loan payment:
$2,310 / $6,000 x 100 = 38.5%
To make things even easier, you can use Bankrate’s DTI calculator.
For a home equity loan, most lenders look for a DTI ratio of no more than 43 percent.
4. Consider a co-signer
If your credit disqualifies you for a home equity loan, a co-signer with better credit might be able to help, in some cases.
“A co-signer can help with credit and income issues for an applicant who has a lower credit score, but ultimately the main applicant or primary borrower will have to have at least the bare minimum credit score that is required based on the bank’s underwriting guidelines,” says Ralph DiBugnara, president of Home Qualified, a real estate platform for buyers, sellers and investors.
A co-signer is just as responsible for repaying the loan as the primary borrower, even if they don’t actually intend to make payments. If you fall behind on loan payments, their credit suffers along with yours.
5. Try a lender you already work with
If your bank, credit union or mortgage lender offers home equity products, it might be able to extend some flexibility, or at least help with your application, since you’re an existing customer.
“A loan officer familiar with the details of an applicant’s situation can help them present it to an underwriter in the best possible way,” says DiBugnara.
6. Write a letter to the lender
Write a letter of explanation describing why your credit score is low, especially if it has taken a recent hit. This letter should matter-of-factly explain credit issues — avoid catastrophizing — and include any relevant paperwork, like bankruptcy documentation. If your credit score was impacted by late payments due to job loss, for example, but you’re employed now, your lender can take this context into consideration.
Lenders that offer home equity loans with bad credit
There are home equity lenders that offer loans to borrowers with lower credit scores. Here are some to consider, along with requirements:
Lender
Bankrate Score (scale of 1-5)
Loan types
Credit score minimum
Maximum CLTV
Maximum DTI
Figure
4.37
HELOC
640
75%-90%
Undisclosed
Guaranteed Rate
3.3
HELOC
620
90%-95%
50%
Spring EQ
2.7
Home equity loan, HELOC
620 for home equity loans, 680 for HELOCs
Up to 97.5%
43%
TD Bank
4.0
Home equity loan, HELOC
660
Undisclosed
Undisclosed
Connexus Credit Union
3.5
Home equity loan, HELOC
640
90%
Undisclosed
Discover
4.4
Home equity loan
660
90%
43%
Pros and cons of getting a home equity loan with bad credit
Getting a home equity loan with bad credit has its benefits and drawbacks. You can tap your equity to help with expenses, but it’s also risky.
Pros
You’ll pay a fixed rate: Home equity loans are for a fixed sum at a fixed interest rate, so you’ll know exactly how much your payment is each month. This can help you budget for and reliably pay down debt, which can help boost your credit score.
You could get out of costlier debt: If you have high-interest debt — like credit card debt — you could pay it off with a lower-rate home equity loan, then repay that loan, with one payment, for less.
Cons
You’re taking on more debt: If you’ve had trouble managing money in the past, it might not be wise to take on more debt with a home equity loan, even if you qualify.
It’ll be more expensive: A lower credit score won’t qualify you for the best home equity loan rates, meaning you’ll pay more in interest.
You could lose your home: If you fall behind on loan payments, you’ll further damage your credit. Even worse: If you’re eventually unable to pay back the loan, your home could go into foreclosure.
What to do if your home equity loan application is denied
If your application for a home equity loan is rejected, don’t despair. First, ask the lender for specific reasons why your application was denied. The answer can help you address any issues before applying in the future.
If your credit was one of the deciding factors, you can improve your score by making on-time payments and paying down any outstanding debt. If you don’t have enough equity in your home, wait until you’ve built a bigger stake (mainly by making your monthly mortgage payments) before submitting a new application.
Both these approaches may take a half-year to a year to make a significant difference in your credit profile. If you’re in more of a hurry, consider applying to other lenders, as their criteria may differ. Just bear in mind that more lenient terms often mean higher interest rates or fees.
And of course, you can consider other forms of financing.
Home equity loan alternatives if you have bad credit
If you need cash but have bad credit, a home equity loan is just one option. Here are some alternatives:
Personal loans
Personal loans can be easier to qualify for than a home equity product, and they aren’t tied to your home. This means that if you fail to repay the loan, the lender can’t go after your house. Personal loans have higher interest rates, however, and shorter repayment terms. This translates to a more expensive monthly payment compared to what you might get with a home equity loan.
Cash-out refinance
In a cash-out refinance, you take out a brand-new mortgage for more than what you owe on your existing mortgage, pay off the existing loan and take the difference in cash. Most lenders require you to maintain at least 20 percent equity in your home in order to cash out.
A caveat, however: A cash-out refi makes the most sense when you can qualify for a lower rate than what you have on your current mortgage, and if you can afford the closing costs. With bad credit, getting that lower rate might not be possible.
Reverse mortgage
Reverse mortgages allow homeowners over the age of 62 to tap their home’s equity as a source of tax-free income. These types of loans need to be repaid upon your death or when you move out or sell the home. You can use reverse mortgages for anything from medical expenses to home renovations, but you must meet some requirements to qualify.
Shared equity agreement
Home equity investment companies might work with you even if you have a lower credit score, often lower than what traditional lenders would accept. These companies offer shared equity agreements in which you receive a lump sum in exchange for an ownership percentage in your home and/or its appreciation.
Unlike with home equity lines of credit (HELOCs) or home equity loans, you don’t make monthly repayments in a shared equity arrangement. Some companies wait until you sell your home, then collect what they’re owed; others have multi-year agreements in which you’ll pay the balance in full at the end of a stated period.
Make sure you understand all the terms of this complex arrangement. Technically, you’re not borrowing money, you’re selling a stake in your home — to a financial professional who naturally wants to see a return on their investment.
How to get a HELOC with bad credit
Applying for a HELOC is pretty much the same as applying for a home equity loan, but if you have bad credit, a loan might have a slight edge over the line of credit. That’s because home equity loans have fixed interest rates and fixed payments, so you’ll know exactly what you need to repay each month. This predictability could help you better manage your budget and keep up with payments.
A HELOC, on the other hand, has a variable rate, which can cause unexpected increases in your monthly payments. For this reason, lenders often have higher credit score criteria for HELOCs than home equity loans.
Tips for improving your credit before getting a home equity loan
To increase your chances of getting approved for a home equity loan, work on improving your credit score well before applying — at least several months. Here are three tips to help you improve your score:
Pay bills on time every month. At the very least, make the minimum payment, but try to pay the balance off completely, if possible — and don’t miss that due date.
Don’t close credit cards after you pay them off. Either leave them open or charge just enough to have a small, recurring payment every month. That’s because closing a card reduces your credit utilization ratio, which can decrease your score. The recommended utilization ratio: no more than 30 percent.
Be cautious with new credit. Getting a higher credit limit on a card or getting a new card can lower your credit utilization ratio — but not if you immediately max things out or blow through the bigger balance. Treat the newly available funds as sacred savings.
FAQ on getting a home equity loan with bad credit
In general, it’s better to get a home equity loan with bad credit. A home equity loan often has a lower credit score requirement compared to a HELOC, and it comes with a fixed interest rate, so your payment will be the same every month, making it easier to plan for.
Yes — in fact, this is the rule for any type of loan, including a home equity product. The higher your credit score, the lower your interest rate.