Mortgage rates over the last seven days followed a split path, but an important rate are now higher. Average 15-year fixed mortgage rates didn’t move, while average 30-year fixed mortgage rates grew.
For variable rates, the 5/1 adjustable-rate mortgage slid lower.
30-year fixed mortgage: 7.05%
15-year fixed mortgage: 6.41%
5/1 adjustable-rate mortgage: 6.39%
Since early November, the average rate for a 30-year fixed mortgage started making sustained drops, largely due to the Federal Reserve’s less restrictive monetary policy, cooling inflation and other economic data. The most common home loans are now in the 6% to 7% range.
Yet even with the recent decline in rates, the mortgage market always slows down toward the end of the year. And rates aren’t compelling enough to upset holiday plans to do home shopping, according to Keith Gumbinger of HSH.com. “After the holidays, if rates are still in this range, we’ll likely see a little seasonal pent-up demand by borrowers expressed in January,” Gumbinger said.
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.
Today’s average mortgage interest rates
If you’re in the market for a home, check out how today’s mortgage rates compare to last week’s. We use data collected by Bankrate to track daily mortgage rate trends. This table summarizes the average rates offered by lenders across the country:
Current average mortgage interest rates
Loan type
Interest rate
A week ago
Change
30-year fixed rate
7.05%
7.00%
+0.05
15-year fixed rate
6.41%
6.41%
N/C
30-year jumbo mortgage rate
7.12%
7.06%
+0.06
30-year mortgage refinance rate
7.21%
7.16%
+0.05
Rates as of January 3, 2024.
How to choose a mortgage
When picking a mortgage, consider the loan term, or payment schedule. The most common mortgage terms are 15 and 30 years, although 10-, 20- and 40-year mortgages also exist. You’ll also need to choose between a fixed-rate mortgage, where the interest rate is set for the duration of the loan, and an adjustable-rate mortgage. With an adjustable-rate mortgage, the interest rate is only fixed for a certain amount of time (commonly five, seven or 10 years), after which the rate adjusts annually based on the market’s current interest rate. Fixed-rate mortgages offer more stability and are a better option if you plan to live in a home in the long term, but adjustable-rate mortgages may offer lower interest rates upfront.
30-year fixed-rate mortgages
The average 30-year fixed mortgage interest rate is 7.05%, which is an increase of 5 basis points from one week ago. (A basis point is equivalent to 0.01%.) A 30-year fixed mortgage is the most common loan term. It will often have a higher interest rate than a 15-year mortgage, but you’ll have a lower monthly payment.
15-year fixed-rate mortgages
The average rate for a 15-year, fixed mortgage is 6.41%, which is the same rate compared to a week ago. Though you’ll have a bigger monthly payment than a 30-year fixed mortgage, a 15-year loan usually comes with a lower interest rate, allowing you to pay less interest in the long run and pay off your mortgage sooner.
5/1 adjustable-rate mortgages
A 5/1 ARM has an average rate of 6.39%, a slide of 2 basis points compared to last week. You’ll typically get a lower introductory interest rate with a 5/1 ARM in the first five years of the mortgage. But you could pay more after that period, depending on how the rate adjusts annually. If you plan to sell or refinance your house within five years, an ARM could be a good option.
Calculate your monthly mortgage payment
Getting a mortgage should always depend on your financial situation and long-term goals. The most important thing is to make a budget and try to stay within your means. CNET’s mortgage calculator below can help homebuyers prepare for monthly mortgage payments.
Where mortgage rates are headed
At the start of the pandemic, mortgage rates were near record lows, around 3%. That all changed as inflation began to surge and the Fed kicked off a series of aggressive interest rate hikes, which indirectly drove up mortgage rates. Now, nearly two years after the first rate increase in March 2022, mortgage rates are still more than double what they were just a few years ago.
The central bank has kept interest rates steady since late July, and mortgage rates are just now starting to see sustained decreases. With the Fed extending its rate-hike pause in December, experts are waiting for the first rate cut. It may be months before that happens, but as long as inflation continues to moderate, mortgage rates should stabilize and start inching even lower in the coming months.
What affects mortgage rates?
Federal Reserve monetary policy: The nation’s central bank doesn’t set interest rates, but when it adjusts the federal funds rate, mortgages tend to go in the same direction.
Inflation: Mortgage rates tend to increase during high inflation. Lenders usually set higher interest rates on loans to compensate for the loss of purchasing power.
The bond market: Mortgage lenders often use long-term bond yields, like the 10-Year Treasury, as a benchmark to set interest rates on home loans. When yields rise, mortgage rates typically increase.
Geopolitical events: World events, such as elections, pandemics or economic crises, can also affect home loan rates, particularly when global financial markets face uncertainty.
Other economic factors: The bond market, employment data, investor confidence and housing market trends, such as supply and demand, can also affect the direction of mortgage rates.
Mortgage rate forecasts from experts
While mortgage forecasters base their projections on different data, most predict rates will remain near or above 7% for the rest of 2023. Here’s a look at where some of the major housing authorities expect average mortgage rates to land at the end of the year.
How to find the best mortgage rates
Though mortgage rates and home prices are high, the housing market won’t be unaffordable forever. It’s always a good time to save for a down payment and improve your credit score to help you secure a competitive mortgage rate when the time is right.
Save for a bigger down payment: Though a 20% down payment isn’t required, a larger upfront payment means taking out a smaller mortgage, which will help you save in interest.
Boost your credit score: You can qualify for a conventional mortgage with a 620 credit score, but a higher score of at least 740 will get you better rates.
Pay off debt: Experts recommend a debt-to-income ratio of 36% or less to help you qualify for the best rates. Not carrying other debt will put you in a better position to handle your monthly payments.
Research loans and assistance: Government-sponsored loans have more flexible borrowing requirements than conventional loans. Some government-sponsored or private programs can also help with your down payment and closing costs.
Shop around for lenders: Researching and comparing multiple loan offers from different lenders can help you secure the lowest mortgage rate for your situation.
Our experts answer readers’ home-buying questions and write unbiased product reviews (here’s how we assess mortgages). In some cases, we receive a commission from our partners; however, our opinions are our own.
Getting a mortgage as a teacher can be tough, particularly if you still have student loan debt to pay off. Fortunately, there are programs to help make buying a home possible.
Whether you’re looking for down payment assistance, lender discounts, or more lenient credit requirements, there are plenty of options available to help teachers achieve their homeownership goals. Here’s what to know about the Teacher Next Door program and other programs or home loans for teachers.
Are there home loans for teachers?
Teachers who are looking to become homeowners have a wide array of options available to help them, including both teacher-specific programs and more general first-time homebuyer loans.
Some teacher-specific homebuyer assistance includes Teacher Next Door, Good Neighbor Next Door, Home for Heroes, or benefits through your teachers union. Your state or city may also have homebuyer programs specifically geared toward teachers. Check your local housing authority’s website to see what’s available to you.
But you may have better luck looking at mortgages available to all borrowers, regardless of profession. There are more of these programs available, and many of them come with bigger benefits than what you’ll find with some profession-specific programs.
How does the Teacher Next Door program work?
Teacher Next Door is a program for homebuyers that’s available to teachers as well as other school personnel, including administrators, office staff, lunchroom workers, custodians, and paraprofessionals.
“Affordable housing is a major concern for everyone, including teachers,” says Stephen Parks, the national director of the Next Door programs, which includes Teacher Next Door. “Many times, the grants and other assistance we provide is the difference maker in a purchasing new home for their family.”
Through this program, eligible professionals can get a grant of up to $8,000, which doesn’t have to be repaid. Teacher Next Door will also help connect you to local down payment assistance programs and says participants can get as much as $10,681 in down payment assistance.
Teacher Next Door is sometimes confused with the Good Neighbor Next Door program, which is overseen by the US Department of Housing and Urban Development. But these are two completely separate programs.
“The Teacher Next Door Program is much more inclusive and flexible than the Good Neighbor Next Door Program, since you may purchase any home on the market, not just in revitalization areas, and there are no minimum residency restrictions,” says Parks.
To get a grant and down payment assistance through Teacher Next Door, you’ll need to work with a real estate agent who’s affiliated with the program and one of the program’s preferred mortgage lenders.
If you’re considering buying a home through the Teacher Next Door program, it’s a good idea to also get your own mortgage rate quotes from other lenders to be sure you’re getting a good deal.
Teacher Next Door program income limits
The Teacher Next Door program doesn’t have any income limits. However, if you have a higher income, you might not qualify for some of the local down payment assistance programs that Teacher Next Door connects you with.
Good Neighbor Next Door program for teachers
The Good Neighbor Next Door program offered through HUD lets public servants buy a home at a 50% discount in certain areas. Teachers are eligible for the Good Neighbor Next Door program.
The catch is that the inventory for this program is extremely limited. Not all homes are eligible — it has to be a HUD-owned foreclosed home in a designated “revitalization area,” which are areas that are lower income and have low homeownership rates. As of December 2023, there were only four homes in the entire country that were eligible for the GNND program, according to HUD’s website.
Homes for Heroes program for teachers
Homes for Heroes offers homebuying discounts to teachers and other public service professionals. According to its website, program participants save an average of $3,000 with Homes for Heroes.
To save money with the Homes for Heroes program, you’ll work with homebuying professionals who are affiliated with the program. For example, working with a Homes for Heroes-affiliated real estate agent could save you $700 for every $100,000 of your home’s purchase price. You’ll get your discounts in the form of a check after closing.
Teachers union mortgage benefits
If you belong to a union, you may want to see if it offers discounts with any mortgage lenders or other types of homebuyer assistance.
For example, the American Federation of Teachers has a mortgage program through Amalgamated Bank that includes a discount on your origination fee. AFT members can also get discounts on professional movers or truck rentals.
Low-down-payment home loans for teachers
There are a variety of low- or no-down-payment home loans available to borrowers, including both conventional and government-backed options.
Conventional loan
When you get a mortgage that isn’t backed by a government agency, it’s called a conventional mortgage. Borrowers can get a conventional loan with a down payment as low as 3%.
However, this might not be the best option for you if your credit isn’t great, since lenders typically have stricter standards for conventional loans. You’ll need at least a 620 credit score to qualify for one of these mortgages.
If you have a lower score, you might want to consider your government-backed mortgage options.
FHA loan
FHA loans are backed by the Federal Housing Administration, and they’re geared toward first-time and low-income homebuyers.
FHA loans have less stringent credit requirements; you can get one of these mortgages with a score as low as 580 with a 3.5% down payment, or 500 if you can put 10% down.
VA loan
To be eligible for a VA loan, you’ll need to be a veteran or current servicemember who meets minimum service requirements. You’ll also generally need at least a 620 credit score, though it varies depending on your lender.
If you qualify for a VA loan, you’ll be able to get a mortgage with 0% down.
USDA loan
Mortgages backed by the US Department of Agriculture are geared toward borrowers buying in rural areas, though some suburban areas also meet the USDA’s requirements. These mortgages also require no down payment.
To qualify for a USDA loan, you’ll typically need at least a 640 credit score.
First-time homebuyer loans and down payment assistance for teachers
Many of the best mortgage lenders for first-time buyers have their own unique programs that come with features and benefits that make homeownership more accessible to borrowers. This includes things like low down payments, down payment or closing cost grants, or flexible credit requirements.
These products aren’t unique to teachers, though they often do come with income or geographical limits.
As you search for a lender, ask about any affordable loan options they offer.
For example, Chase Mortgage has a loan called the DreaMaker Mortgage. It allows 3% down payments, reduced private mortgage insurance costs, and flexible credit requirements. This mortgage can also be combined with the bank’s Homebuyer Grant, which offers up to $5,000 in down payment or closing cost assistance. Many other major mortgage lenders have similar programs.
Home loans for teachers FAQs
The Teacher Next Door program is a legitimate homebuyer program that can help teachers and other school personnel who are buying a home get grants and down payment assistance.
Teacher Next Door could be a good option to help you become a homeowner — but there are a wide array of homebuyer assistance programs out there, so it’s a good idea to explore your options first. With the Teacher Next Door program, you’ll be limited to working with a lender affiliated with the program, which might not be ideal if you can get a lower rate from a different mortgage lender.
You might be able to get a discount on your mortgage through your teachers union or a credit union that offers special rates to educators. Check with local lenders in your area to see what’s available to you.
An FHA loan is a mortgage insured by the Federal Housing Administration, which is part of the U.S. Department of Housing and Urban Development. With a minimum 3.5% down payment for borrowers with a credit score of 580 or higher, FHA loans are often a good fit for first-time home buyers or people with little savings or credit challenges.
You could still qualify for an FHA loan even if you don’t meet the requirements for a conventional mortgage or if you had a bankruptcy.
The federal government doesn’t issue FHA loans, but it does insure them. That insurance protects lenders in case of default, which is why FHA lenders are willing to offer favorable terms to borrowers who might not qualify for a conventional home loan.
FHA loans are issued by private, FHA-approved lenders, including many banks, credit unions and nonbanks (a type of lender).
An FHA home loan can be used to buy or refinance numerous types of homes, including:
Specific types of FHA loans can also be used to finance new construction or renovate an existing home. However, all properties — existing or new construction — must undergo an FHA appraisal. If the property meets government standards, then you can use an FHA loan to buy (or refinance) it.
Mortgage loans from our partners
FHA vs. conventional loans
In general, it’s easier to qualify for an FHA loan than for a conventional loan, which is a mortgage that isn’t insured or guaranteed by the federal government.
Here are some key differences between FHA and conventional loans:
Credit score and history: FHA loans allow for lower credit scores than conventional loans. If you’ve had credit problems (including bankruptcy), you might find it easier to qualify for an FHA loan.
Mortgage insurance: Unlike conventional loans, all FHA loans require mortgage insurance. (However, the amount you pay varies based on the size of your down payment.) With a conventional loan, mortgage insurance generally isn’t required if you make a 20% down payment or once you reach 20% equity in your home.
Gift funds for down payments: FHA rules are more flexible regarding monetary gifts from family, employers or charitable organizations you can apply to your down payment.
FHA appraisal: To qualify for an FHA loan, the property must undergo an appraisal to make sure it meets government standards for health and safety. An FHA appraisal is different and separate from a home inspection. Conventional loans don’t require this.
Closing costs: FHA loans may involve closing costs that aren’t required by conventional loans.
FHA loan requirements
The FHA sets minimum requirements for borrowers seeking an FHA loan. However, each FHA-approved lender can determine its own underwriting standards, so long as those requirements are in line with the minimums set by the FHA. For instance, one lender may require a minimum credit score of 600 and another a minimum of 620.
Lenders each set their own interest rates and fees, too. To make sure you get the best FHA mortgage rate and loan terms, shop more than one FHA-approved lender and compare offers.
In general, here are the basic requirements to expect when applying for an FHA loan.
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Credit score for FHA loans
According to the FHA, the minimum credit score for an FHA loan is 500. If your score falls between 500 and 579, you can qualify for an FHA loan, but you’ll need to make a down payment of at least 10%.
If your credit score is 580 or higher, you can qualify for a down payment as low as 3.5%.
Again, these are FHA guidelines; individual lenders can and often do opt to require a higher minimum credit score.
🤓Nerdy Tip
If your credit score doesn’t measure up, you may want to work on building your credit before you begin home shopping. When you’re ready, find a lender that specializes in FHA loans. These lenders might be more experienced at working with credit-challenged borrowers.
Debt-to-income ratio
Your debt-to-income ratio, or DTI, is a measure of your monthly debt payments in relation to your pretax income. That includes your rent or mortgage costs in addition to things like auto or student loans and credit card balances. In general, lenders view a lower DTI as more favorable when issuing loans.
DTI requirements for FHA loans differ based on your credit score and other compensating factors, such as how much cash you have in the bank. If you have a credit score from 500 to 579, the FHA generally requires a DTI of less than 43%.
It’s still possible to get an FHA loan with a DTI that’s higher than 50%, but you’ll have to meet compensating factors, and your options will be limited.
Down payments and gift funds
The minimum down payment required for an FHA loan is 3.5% if you have a credit score of 580 or higher. If you have a credit score from 500 to 579, you’ll have to put down at least 10% of the purchase price.
The good news? It doesn’t all have to come from savings. You can use gift money for your FHA down payment, so long as the donor provides a letter with their contact information, their relationship to you, the amount of the gift and a statement that no repayment is expected.
🤓Nerdy Tip
Look into state and local down payment assistance programs for first-time home buyers, usually defined as someone who has not owned a home within the past three years. You may be able to find low- or no-interest loans, or even grants, to help you pull together the cash.
FHA appraisal
The property you’re trying to buy with an FHA loan has to undergo an appraisal from an FHA-approved professional and meet FHA minimum property requirements.
The FHA appraisal is separate and different from a home inspection. The goal is to be sure the home is a good investment — in other words, worth what you’re paying for it — and ensure it meets basic safety and livability standards.
For an FHA 203(k) renovation loan, the property may undergo two appraisals: an “as is” appraisal that assesses its current state and an “after improved” appraisal estimating the value once the work is completed.
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Mortgage insurance
FHA mortgage insurance is built into every loan. When you first get an FHA mortgage, you’ll make an upfront mortgage insurance payment, which can be rolled into the total amount of the loan. Then, you make monthly mortgage insurance payments thereafter. The length of your monthly payments varies based on the size of your down payment.
If your down payment is less than 10%: You will pay FHA mortgage insurance for the life of the loan.
If your down payment is 10% or more: You will pay FHA mortgage insurance for 11 years.
With a conventional loan, you can cancel private mortgage insurance once you reach 20% equity in your home. FHA mortgage insurance can’t be canceled in the same way.
🤓Nerdy Tip
Once you have enough home equity, you could choose to refinance your FHA loan into a conventional loan. This would remove the FHA mortgage insurance requirement, but you’d have to meet new qualifications and pay additional closing costs and fees.
Types of FHA loans
The FHA offers a variety of loan options, from standard purchase loans to products designed to meet highly specific needs. A full list of all FHA loan products and eligibility requirements is available at HUD.gov. Here are some common options:
Home purchase: Basic Home Mortgage 203(b)
The Basic Home Mortgage 203(b) is the standard single-family home loan backed by the FHA. Only primary residences — not vacation or second homes — qualify for FHA-insured loans.
FHA refinance loans
You may want to refinance your FHA loan to lower your interest rate, shorten your mortgage term or get cash flow for a costly project, such as a home renovation. Options include:
FHA streamline refinance: This can save you time and paperwork because it doesn’t require a new appraisal.
FHA cash-out refinance: This loan replaces your current mortgage with a new, larger loan. The difference is paid to you in cash.
FHA 203(k) refinance: This loan lets you roll the cost of repairs or renovations into the total amount of your mortgage. Upgrades must meet FHA eligibility requirements.
FHA renovation loans
FHA 203(k) rehabilitation mortgages: This option helps borrowers finance fixer-uppers by rolling purchase and renovation costs into one loan. The standard 203(k) loan lets borrowers finance improvements over $5,000. The FHA limited 203(k) loan lets borrowers finance improvements up to $35,000.
Title 1 Property Improvement Loans: These loans are also available to finance home repairs and improvements. Homeowners can obtain this loan without refinancing their existing mortgage, and the funds can be used to supplement a 203(k) loan. However, you can borrow only up to $25,000 for a single-family home.
Other specialty FHA loans
Energy-efficient mortgages: An energy-efficient mortgage can be used to finance home improvements to help a home save energy. To qualify for this financing, the home must undergo an energy assessment from a qualified professional.
Construction-to-permanent loans: This loan type helps borrowers finance the purchase of a home that’s still being built by paying the contractor in installments. When the home is finished, the loan converts to a permanent mortgage. Qualifying for these types of loans can be more difficult and time-consuming than a traditional purchase mortgage.
Manufactured homes: This includes the type sometimes called a mobile home. Manufactured homes can be bought with FHA financing, so long as everything meets HUD requirements. For example, HUD mandates that a manufactured home is at least 400 square feet, and it must be designed to use as a dwelling attached to a permanent foundation.
FHA loan limits
No matter what type of FHA loan you’re seeking, there will be limits on the mortgage amount. These limits vary by county. FHA loan limits in 2024 range from $498,257 to $1,149,825.
Low-cost county limit: The upper limit for FHA loans on single-family homes in low-cost counties is $498,257. An example is Lucas County, Ohio, where Toledo is located.
High-cost county limit: The upper limit for FHA loans in the highest-cost counties is $1,149,825, which would include mortgages in San Francisco County, California, for example.
Some counties have housing prices that fall somewhere in between, so the FHA loan limits are in the middle, too. An example is Denver County, Colorado, where the 2024 FHA loan limit is $816,500. You can visit HUD’s website to look up the FHA loan limit in any county.
How to apply for an FHA loan
Applying for an FHA loan will require personal and financial documents, including but not limited to:
A valid Social Security number.
Bank statements for, at a minimum, the past 30 days. You’ll also need to provide documentation for deposits made during that time, such as pay stubs.
Your lender may be able to automatically retrieve some required documentation, like credit reports, tax returns and employment records. Special circumstances — such as if you’re a student or you don’t have a credit score — may require additional paperwork.
Pros and cons of FHA loans
An FHA loan might be your best option for homebuying if you have credit challenges. Still, it’s important to understand the trade-offs.
Benefits of FHA loans
Lower minimum credit score requirements than conventional loans.
Down payments as low as 3.5%.
Debt-to-income ratios as high as 50% allowed (in some cases, may be higher if you meet compensating factors).
Disadvantages of FHA loans
FHA mortgage insurance lasts the full term of the loan with a down payment of less than 10%.
Property must undergo a separate appraisal and meet strict health and safety standards, which some sellers will consider an added hurdle.
No jumbo loans: The loan amount cannot exceed the conforming limit for the area.
Though the FHA sets standard requirements, FHA-approved lenders’ requirements may be different.
FHA interest rates and fees also vary by lender, so it’s important to comparison shop. Getting a mortgage preapproval from more than one lender can help you compare the total cost of the loan.
Ways to get the best FHA mortgage rates
When you’re shopping for an FHA loan, it’s smart to make sure your financials are in as good a shape as possible. This means pulling your credit reports from the three main credit reporting agencies — Experian, Equifax and TransUnion — and addressing any errors you might find. If possible, you might also pay down any larger balances, which has the added benefit of improving your debt-to-income ratio. While FHA loans might have more lenient requirements than some other loan types, having a better credit score and DTI will likely net you a better rate.
FHA loans are notable for requiring low down payments, but if you’re able to make one that’s higher than the minimum, you’ll look like a safer candidate to lenders. This is also likely to get you lower rate offers.
Once you feel confident about your application, compare mortgage rates between at least three FHA lenders. Even small differences in the rate you pay could save you — or cost you — thousands of dollars over the term of a home loan. And while you’re comparing lenders, look into first-time home buyer programs offered by your state’s housing authority. Many of these nonprofit agencies offer down payment and closing cost assistance in the form of grants.
While many people dream of paying for a home in cash, this goal can be very challenging. Housing prices are surging all over the country, and some markets are so pricey it could take decades to save up even for a starter home. Plus, who wants to rent their whole life while they save up to buy a home?
Fortunately, you don’t have to take out a traditional thirty-year loan and make only the minimum monthly payments. Instead, you could take out a mortgage of any length and pay more than the minimum to pay off your mortgage early. This strategy gives you the best of both worlds — a home to live in and the ability to get out of debt faster, provided you can afford to pay extra toward your mortgage each month.
Before you decide to pursue the strategy of paying off your mortgage early. However, it’s essential to make sure your mortgage doesn’t charge a prepayment penalty. While it may sound preposterous, some mortgage lenders charge prepayment penalties if you pay off too much of your outstanding loan balance in any given year — even if you’re selling your home so you can move.
What is a mortgage prepayment penalty?
A mortgage prepayment penalty is a fee imposed by some lenders when a borrower pays off their mortgage loan earlier than the agreed-upon schedule. This fee can be triggered by either paying a significant portion of the loan balance or refinancing the mortgage. The rationale behind this fee is to compensate the lender for the interest payments they will miss out on due to the early repayment.
Types of Mortgage Prepayment Penalties
There are mainly two types of mortgage prepayment penalties: soft and hard.
Soft Prepayment Penalties
This penalty is applied only when you refinance your mortgage, leading to an early payoff of the original loan. However, if you sell your home, you won’t be charged this penalty. Soft penalties are generally more borrower-friendly, offering some flexibility.
Hard Prepayment Penalties
These are more stringent. A hard prepayment penalty is charged not only when you refinance, but also if you sell your home. This means that any action leading to the early payoff of the mortgage, whether it’s selling your house or refinancing it, will incur a penalty. Hard penalties can be financially significant and are a crucial factor to consider when agreeing to a mortgage.
Why do mortgage lenders charge prepayment penalties?
Lenders charge prepayment penalties for a few reasons:
Interest revenue: The most apparent reason is the loss of interest revenue. When a borrower pays off a loan early, the mortgage lender misses out on future interest payments they had counted on.
Loan pricing strategy: Some mortgage lenders offer lower initial interest rates or more favorable terms on the assumption that they’ll earn interest over a longer period. Early repayment disrupts this strategy.
Risk management: From a lender’s perspective, prepayment can introduce financial unpredictability. The penalty is a way to mitigate this risk.
Secondary market influence: Loans are often sold on the secondary market. Investors in these loans expect a certain return, calculated based on the loan’s expected life. Prepayments can disrupt these expectations, and penalties help to balance the equation.
The Problem with Prepayment Penalties
While getting a mortgage with a prepayment penalty may not be the end of the world, you may face notable disadvantages if your housing situation or your finances change. With a hard prepayment penalty, in particular, you would actually be penalized if you refinanced your home into a mortgage with a lower interest rate and better terms.
And, what if you need to relocate for a job or find yourself needing additional room for your growing family? A prepayment penalty would ding you then as well.
A soft prepayment penalty only applies if you refinance (and not if you sell), but it’s still not much better. You’ll still be stuck paying a significant prepayment penalty fee if you need to change your mortgage terms, and this fee could come at the worst possible time if you’re refinancing as a result of financial distress.
How to Avoid Prepayment Penalties
One of the most critical steps in avoiding prepayment penalties is to thoroughly read and understand your mortgage terms. Often, the details regarding prepayment penalties are buried in the fine print of the mortgage agreement.
It’s essential to review these terms carefully before signing. Look for sections titled “Prepayment,” “Prepayment Penalty,” or similar headings. Understand the conditions that trigger the penalty, the calculation method, and the duration for which the penalty applies.
If the document is complex or uses technical jargon, consider consulting a real estate attorney or a financial advisor for clarification.
Questions to Ask Your Lender
When discussing mortgage options with your lender, it’s crucial to ask direct questions about prepayment penalties. Some questions to consider include:
Does this mortgage have a prepayment penalty? – A straightforward question to start the conversation.
What are the specific terms of the prepayment penalty? – Ask for details like the amount, duration, and conditions.
Under what circumstances does the penalty apply? – Clarify if the penalty is triggered by refinancing, selling, or making large payments.
Is the prepayment penalty clause negotiable? – Find out if there’s room for negotiation on this aspect.
Can you provide a loan option without a prepayment penalty? – Express your interest in alternatives without such penalties.
Negotiating Mortgage Terms
Negotiation is a powerful tool in securing favorable mortgage terms. Here are some strategies to help negotiate out of a prepayment penalty:
Shop around: Before settling with one lender, shop around. Use offers from other lenders as leverage in your negotiations.
Highlight your creditworthiness: If you have a strong credit score and a stable financial history, use this as a bargaining chip. Lenders are more likely to offer favorable terms to low-risk borrowers.
Be upfront about your plans: If you intend to pay off your mortgage early or think you might refinance, let your lender know. This can open up discussions for more suitable mortgage products.
Ask for a trade-off: If the lender insists on a prepayment penalty, negotiate for a lower interest rate or other benefits to offset the potential penalty.
Seek professional advice: A mortgage broker or financial advisor can provide valuable insights and negotiation tactics specific to your situation.
Remember, knowledge and negotiation skills are key to avoiding prepayment penalties. By understanding your mortgage terms, asking the right questions, and effectively negotiating, you can secure a mortgage that aligns with your financial goals and offers the flexibility you need.
With all this in mind, here are some steps to consider as you shop for a new mortgage:
Check Your Credit Score
Your credit score plays a pivotal role in determining the terms of your mortgage, including interest rates and eligibility for certain loan types. Higher credit scores typically unlock lower interest rates and more favorable loan terms.
If your credit score is not in the ‘good’ or ‘excellent’ range, it’s advisable to take steps to improve it. This could include paying down debts, ensuring timely bill payments, and correcting any inaccuracies on your credit report. Even small improvements in your credit score can lead to significant savings over the life of a mortgage.
Comparing Mortgage Offers
When shopping for a mortgage, it’s essential to compare offers from multiple lenders. Look beyond just the interest rates; consider the overall loan terms, including fees, loan duration, and flexibility.
Use a mortgage calculator to understand the long-term implications of each offer, including the total interest you’ll pay over the life of the loan. It’s also crucial to compare prepayment penalties, as these can significantly impact your financial flexibility and cost you more if you decide to pay off your mortgage early or refinance.
Government-Sponsored Home Loan Programs
For those with less-than-ideal credit, or who are seeking more flexible qualification criteria, government-sponsored home loan programs like FHA (Federal Housing Administration) and USDA (United States Department of Agriculture) loans can be excellent alternatives.
These home loans often come without prepayment penalties and can be easier to qualify for compared to conventional loans. FHA loans are known for their lower down payment requirements and more lenient credit score criteria, making them suitable for first-time homebuyers.
USDA loans, targeted at rural and suburban homebuyers, offer benefits such as no down payment and competitive interest rates. However, they come with specific eligibility requirements related to the location of the property and the borrower’s income level.
Read the Fine Print
Before you make the final decision on your new mortgage, the Consumer Financial Protection Bureau (CFPB) advises reading through the details of your loan documents. If your mortgage contract has a prepayment penalty, make sure you understand how much it will cost and how long it lasts.
Bottom Line
Before you take out a mortgage, make sure you’re not setting yourself up for an unpleasant surprise. You should know how much your mortgage payment will be each month and exactly when your loan will be paid off, for example. Moreover, you should also be aware of any prepayment penalties or fees you’ll be charged if you need to refinance or move for any reason.
Generally speaking, it’s wise to avoid mortgages that charge a prepayment penalty. You may think you’ll remain in your home forever, but you never know how life could change in the next five years. By choosing a mortgage without a prepayment penalty, you’re keeping your options open and protecting yourself from expensive prepayment fees.
At the end of the day, you should try to find an affordable mortgage free of “gotchas” that can cost you big time when you least expect it. If you fail to read the loan agreement and wind up facing a big mortgage prepayment penalty, you could live to regret it.
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.
The interest rate on a 30-year fixed-rate mortgage is 6.375% as of December 26, which is unchanged from Friday. Additionally, the interest rate on a 15-year fixed-rate mortgage is 5.875%, which is 0.500 percentage points higher than Friday.
With mortgage rates changing daily, it’s a good idea to check today’s rate before applying for a loan. It’s also important to compare different lenders’ current interest rates, terms, and fees to ensure you get the best deal.
Rates last updated on December 26, 2023. Rates are based in Texas and the assumptions are shown here. Actual rates may vary. Credible, a personal finance marketplace, has 5,000 Trustpilot reviews with an average star rating of 4.7 (out of a possible 5.0).
How do mortgage rates work?
When you take out a mortgage loan to purchase a home, you’re borrowing money from a lender. In order for that lender to make a profit and reduce risk to itself, it will charge interest on the principal — that is, the amount you borrowed.
Expressed as a percentage, a mortgage interest rate is essentially the cost of borrowing money. It can vary based on several factors, such as your credit score, debt-to-income ratio (DTI), down payment, loan amount, and repayment term.
After getting a mortgage, you’ll typically receive an amortization schedule, which shows your payment schedule over the life of the loan. It also indicates how much of each payment goes toward the principal balance versus the interest.
Near the beginning of the loan term, you’ll spend more money on interest and less on the principal balance. As you approach the end of the repayment term, you’ll pay more toward the principal and less toward interest.
Your mortgage interest rate can be either fixed or adjustable. With a fixed-rate mortgage, the rate will be consistent for the duration of the loan. With an adjustable-rate mortgage (ARM), the interest rate can fluctuate with the market.
Keep in mind that a mortgage’s interest rate is not the same as its annual percentage rate (APR). This is because an APR includes both the interest rate and any other lender fees or charges.
Mortgage rates change frequently — sometimes on a daily basis. Inflation plays a significant role in these fluctuations. Interest rates tend to rise in periods of high inflation, whereas they tend to drop or remain roughly the same in times of low inflation. Other factors, like the economic climate, demand, and inventory can also impact the current average mortgage rates.
To find great mortgage rates, start by using Credible’s secured website, which can show you current mortgage rates from multiple lenders without affecting your credit score. You can also use Credible’s mortgage calculator to estimate your monthly mortgage payments.
What determines the mortgage rate?
Mortgage lenders typically determine the interest rate on a case-by-case basis. Generally, they reserve the lowest rates for low-risk borrowers — that is, those with a higher credit score, income, and down payment amount. Here are some other personal factors that may determine your mortgage rate:
Location of the home
Price of the home
Your credit score and credit history
Loan term
Loan type (e.g., conventional or FHA)
Interest rate type (fixed or adjustable)
Down payment amount
Loan-to-value (LTV) ratio
DTI
Other indirect factors that may determine the mortgage rate include:
Current economic conditions
Rate of inflation
Market conditions
Housing construction supply, demand, and costs
Consumer spending
Stock market
10-year Treasury yields
Federal Reserve policies
Current employment rate
How to compare mortgage rates
Along with certain economic and personal factors, the lender you choose can also affect your mortgage rate. Some lenders have higher average mortgage rates than others, regardless of your credit or financial situation. That’s why it’s important to compare lenders and loan offers.
Here are some of the best ways to compare mortgage rates and ensure you get the best one:
Shop around for lenders: Compare several lenders to find the best rates and lowest fees. Even if the rate is only lower by a few basis points, it could still save you thousands of dollars over the life of the loan.
Get several loan estimates: A loan estimate comes with a more personalized rate and fees based on factors like income, employment, and the property’s location. Review and compare loan estimates from several lenders.
Get pre-approved for a mortgage: Pre-approval doesn’t guarantee you’ll get a loan, but it can give you a better idea of what you qualify for and at what interest rate. You’ll need to complete an application and undergo a hard credit check.
Consider a mortgage rate lock: A mortgage rate lock lets you lock in the current mortgage rate for a certain amount of time — often between 30 and 90 days. During this time, you can continue shopping around for a home without worrying about the rate changing.
Choose between an adjustable- and fixed-rate mortgage: The interest rate type can affect how much you pay over time, so consider your options carefully.
One other way to compare mortgage rates is with a mortgage calculator. Use a calculator to determine your monthly payment amount and the total cost of the loan. Just remember, certain fees like homeowners insurance or taxes might not be included in the calculations.
Here’s a simple example of what a 15-year fixed-rate mortgage might look like versus a 30-year fixed-rate mortgage:
15-year fixed-rate
Loan amount: $300,000
Interest rate: 6.29%
Monthly payment: $2,579
Total interest charges: $164,186
Total loan amount: $464,186
30-year fixed-rate
Loan amount: $300,000
Interest rate: 6.89%
Monthly payment: $1,974
Total interest charges: $410,566
Total loan amount: $710,565
Pros and cons of mortgages
If you’re thinking about taking out a mortgage, here are some benefits to consider:
Predictable monthly payments: Fixed-rate mortgage loans come with a set interest rate that doesn’t change over the life of the loan. This means more consistent monthly payments.
Potentially low interest rates: With good credit and a high down payment, you could get a competitive interest rate. Adjustable-rate mortgages may also come with a lower initial interest rate than fixed-rate loans.
Tax benefits: Having a mortgage could make you eligible for certain tax benefits, such as a mortgage interest deduction.
Potential asset: Real estate is often considered an asset. As you pay down your loan, you can also build home equity, which you can use for other things like debt consolidation or home improvement projects.
Credit score boost: With on-time payments, you can build your credit score.
And here are some of the biggest downsides of getting a mortgage:
Expensive fees and interest: You could end up paying thousands of dollars in interest and other fees over the life of the loan. You will also be responsible for maintenance, property taxes, and homeowners insurance.
Long-term debt: Taking out a mortgage is a major financial commitment. Typical loan terms are 10, 15, 20, and 30 years.
Potential rate changes: If you get an adjustable rate, the interest rate could increase.
How to qualify for a mortgage
Requirements vary by lender, but here are the typical steps to qualify for a mortgage:
Have steady employment and income: You’ll need to provide proof of income when applying for a home loan. This may include money from your regular job, alimony, military benefits, commissions, or Social Security payments. You may also need to provide proof of at least two years’ worth of employment at your current company.
Review any assets: Lenders consider your assets when deciding whether to lend you money. Common assets include money in your bank account or investment accounts.
Know your DTI: Your DTI is the percentage of your gross monthly income that goes toward your monthly debts — like installment loans, lines of credit, or rent. The lower your DTI, the better your approval odds.
Check your credit score: To get the best mortgage rate possible, you’ll need to have good credit. However, each loan type has a different credit score requirement. For example, you’ll need a credit score of 580 or higher to qualify for an FHA loan with a 3.5% down payment.
Know the property type: During the loan application process, you may need to specify whether the home you want to buy is your primary residence. Lenders often view a primary residence as less risky, so they may have more lenient requirements than if you were to get a secondary or investment property.
Choose the loan type: Many types of mortgage loans exist, including conventional loans, VA loans, USDA loans, FHA loans, and jumbo loans. Consider your options and pick the best one for your needs.
Prepare for upfront and closing costs: Depending on the loan type, you may need to make a down payment. The exact amount depends on the loan type and lender. A USDA loan, for example, has no minimum down payment requirement for eligible buyers. With a conventional loan, you’ll need to put down 20% to avoid private mortgage insurance (PMI). You may also be responsible for paying any closing costs when signing for the loan.
How to apply for a mortgage
Here are the basic steps to apply for a mortgage, and what you can typically expect during the process:
Choose a lender: Compare several lenders to see the types of loans they offer, their average mortgage rates, repayment terms, and fees. Also, check if they offer any down payment assistance programs or closing cost credits.
Get pre-approved: Complete the pre-approval process to boost your chances of getting your dream home. You’ll need identifying documents, as well as documents verifying your employment, income, assets, and debts.
Submit a formal application: Complete your chosen lender’s application process — either in person or online — and upload any required documents.
Wait for the lender to process your loan: It can take some time for the lender to review your application and make a decision. In some cases, they may request additional information about your finances, assets, or liabilities. Provide this information as soon as possible to prevent delays.
Complete the closing process: If approved for a loan, you’ll receive a closing disclosure with information about the loan and any closing costs. Review it, pay the down payment and closing costs, and sign the final loan documents. Some lenders have an online closing process, while others require you to go in person. If you are not approved, you can talk to your lender to get more information and determine how you can remedy any issues.
How to refinance a mortgage
Refinancing your mortgage lets you trade your current loan for a new one. It does not mean taking out a second loan. You will also still be responsible for making payments on the refinanced loan.
You might want to refinance your mortgage if you:
Want a lower interest rate or different rate type
Are looking for a shorter repayment term so you can pay off the loan sooner
Need a smaller monthly payment
Want to remove the PMI from your loan
Need to use the equity for things like home improvement or debt consolidation (cash-out refinancing)
The refinancing process is similar to the process you follow for the original loan. Here are the basic steps:
Choose the type of refinancing you want.
Compare lenders for the best rates.
Complete the application process.
Wait for the lender to review your application.
Provide supporting documentation (if requested).
Complete the home appraisal.
Proceed to closing, review the loan documents, and pay any closing costs.
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.
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For a third day, average mortgage rates barely moved yesterday. But that’s good because it means last week’s big falls remain effectively uneroded.
First thing, it was again looking as if mortgage rates today might fall, perhaps modestly or moderately. However, that could change as the hours pass.
Current mortgage and refinance rates
Find your lowest rate. Start here
Program
Mortgage Rate
APR*
Change
Conventional 30-year fixed
7.125%
7.14%
-0.075
Conventional 15-year fixed
6.385%
6.415%
-0.1
Conventional 20-year fixed
6.975%
7%
-0.045
Conventional 10-year fixed
6.12%
6.145%
-0.065
30-year fixed FHA
5.98%
6.88%
-0.095
30-year fixed VA
6.165%
6.315%
-0.13
5/1 ARM Conventional
6.425%
7.675%
-0.035
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?
Every day that passes makes a corrective bounce (when mortgage rates rise as markets think they’ve got carried away) less likely. And it reinforces my hope that those rates are in a downward trend that could last well into next year.
So, my personal rate lock recommendations are:
LOCK if closing in 7 days
FLOAT if closing in 15 days
FLOAT if closing in 30 days
FLOAT if closing in 45 days
FLOATif 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 lower to 3.90% from 3.92%. (Good for mortgage rates.) More than any other market, mortgage rates typically tend to follow these particular Treasury bond yields
Major stock indexes were mostly falling this morning. (Good 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 climbed to $75.14 from $73.12 a barrel. (Bad for mortgage rates*.) Energy prices play a prominent role in creating inflation and also point to future economic activity
Goldprices held steady at $2,049 an ounce. (Neutral for mortgage rates*.) It is generally better for rates when gold prices rise and worse when they fall. Gold tends to rise when investors worry about the economy.
CNN Business Fear & Greed index — ticked down to 77 from 78. (Good 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 decrease. 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?
The Federal Reserve
This morning’s Wall Street Journal (paywall) observed: “After their policy meeting last week, Fed officials released projections of at least three rate cuts [in general interest rates] next year. They have since been flummoxed that investors expect even faster and deeper cuts. The result: Confusion over when and how quickly the Fed might cut as the central bank tries to bring inflation down without a painful recession.”
This could turn into a real issue that could push mortgage rates higher, probably in the new year. Wall Street has a long and inglorious record of hearing what it wants the Fed to say rather than what the Fed actually says. And we’ve seen quite recently examples of sharp rises in mortgage rates when markets’ wishful thinking collides with reality.
Still, last week’s Fed meeting did deliver genuinely good news. And, even if mortgage rates rise when investors face the cold light of dawning reality, I’m optimistic that we’ll keep at least most of the recent gains. Just be aware that the path to lower mortgage rates is unlikely to be smooth.
Today
This morning’s economic reports cover existing home sales in November and consumer confidence in December. They’re both published too late for me to assess their likely impact on markets and mortgage rates.
They could push mortgage rates a little higher or lower, but they rarely move them far or for long.
Tomorrow
Tomorrow brings gross domestic product (GDP) figures for the third quarter of this year. This will be the third and final estimate for this number.
The second estimate put GDP growth at 5.2%, up from 2.1% in the second quarter. MarketWatch says that market expectations for tomorrow’s figure have recently been slightly scaled down to 5.1%.
If the actual number tomorrow is lower than 5.1%, that could drag mortgage rates lower. But, if it’s higher, that could push those rates upward.
Friday
We’re due November’s personal consumption expenditures (PCE) price index on Friday. Markets might get nervous if that shows inflation rising more than expected because that could destroy the Fed’s new-found optimism.
More on what to expect from the PCE report tomorrow.
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 low for mortgage rates was set on Jan. 7, 2021, when it stood at 2.65% for conventional, 30-year, fixed-rate mortgages.
Freddie’s Dec. 14 report put that same weekly average at 6.95%, down from the previous week’s 7.03%. 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 current quarter (Q4/23) and the following three quarters (Q1/24, Q2/24 and Q3/24).
The numbers in the table below are for 30-year, fixed-rate mortgages. Fannie’s were updated on Dec. 19 and the MBA’s on Dec. 13.
Forecaster
Q4/23
Q1/24
Q2/24
Q3/24
Fannie Mae
7.4%
7.0%
6.8%
6.6%
MBA
7.4%
7.0%
6.6%
6.3%
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.
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.
In fact, 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. 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. 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. Mortgage rates shown here are based on sample borrower profiles that vary by loan type. See our full loan assumptions here.
While mortgage rates have seen some dips in recent weeks, rates are still higher than they were a year ago. And though there’s plenty of interest in homeownership, it’s still difficult for most people to afford to purchase a house.
A number of closely followed mortgage rates slumped over the last seven days. 15-year fixed and 30-year fixed mortgage rates both decreased. The average rate of the most common type of variable-rate mortgage, the 5/1 adjustable-rate mortgage, also saw rates trending downward.
High interest rates and house prices, together with limited for-sale inventory, have effectively kept a lid on homebuying demand throughout 2023. That was especially clear when mortgage rates surged past 8% in October, causing new-home sales to fall by 5.6% and existing-home sales to fall by 4.1% from the prior month.
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.
Once the average rate for a 30-year fixed mortgage fell below 8% in early November, home loan applications started slowly inching up, according to the Mortgage Bankers Association. Mortgage interest rates, which are influenced by macroeconomic factors, such as inflation, job growth and the bond market, as well as investor confidence and global events, are always somewhat volatile. But experts note that changing economic conditions, particularly slowing inflation, could help mortgage rates stabilize in 2024.
Today’s average mortgage interest rates
If you’re in the market for a home, check out how today’s mortgage rates compare to last week’s. We use data collected by Bankrate to track rate changes over time. This table summarizes the average rates offered by lenders across the country:
Average mortgage interest rates
Product
Rate
Last week
Change
30-year fixed
7.32%
7.53%
-0.21
15-year fixed
6.74%
6.80%
-0.06
30-year jumbo mortgage rate
7.39%
7.59%
-0.20
30-year mortgage refinance rate
7.46%
7.63%
-0.17
Rates as of December 12, 2023.
Where mortgage rates are headed
At the start of the pandemic, mortgage rates were near record lows, around 3%. That all changed as inflation began to surge and the Federal Reserve kicked off a series of aggressive interest rate hikes, which indirectly drove up mortgage rates. Now, 20 months after the Fed’s first increase in March 2022, mortgage rates are well above 7%.
The central bank has kept interest rates steady since late July, but mortgage rates continued to climb until fairly recently. Following the Fed’s November meeting, mortgage rates dropped lower for the first time in months due to a mix of economic factors, including a shift in the 10-year Treasury yield, weaker jobs data and a better-than-expected inflation report.
Any mortgage forecast is simply an estimate, but experts say that improved inflation data and an end to the Fed’s rate-hike cycle could be signaling the start of a slow recovery in home loan rates. Most major housing authorities predict average mortgage rates to return to the 6% range around mid-2024.
“Rates will hold steady in the near term, except in the event of unexpected news or developments,” said Matt Dunbar, senior vice president of Southeast Region at Churchill Mortgage. The Fed, which is in a holding pattern to collect more data, will likely stay the course with a rate pause unless there are unwelcome surprises in the December inflation and jobs reports.
Calculate your monthly mortgage payment
Getting a mortgage should always depend on your financial situation and long-term goals. The most important thing is to make a budget and try to stay within your means. CNET’s mortgage calculator below can help homebuyers prepare for monthly mortgage payments.
What is a good loan term?
When picking a mortgage, remember to consider the loan term, or payment schedule. The most common mortgage terms are 15 years and 30 years, although 10-, 20- and 40-year mortgages also exist. Mortgages can either be fixed-rate and adjustable-rate mortgages. The interest rates in a fixed-rate mortgage are set for the duration of the loan. The interest rates for an adjustable-rate mortgage are only fixed for a certain amount of time (commonly five, seven or 10 years), after which the rate adjusts annually based on the current interest rate in the market.
When choosing between a fixed-rate and adjustable-rate mortgage, consider the length of time you plan to live in your home. If you plan on living long-term in a new house, a fixed-rate mortgage may be the better option. Fixed-rate mortgages offer more stability over time compared to adjustable-rate mortgages, but adjustable-rate mortgages may offer lower interest rates upfront. As a result, a growing share of homebuyers are leaning toward ARMs.
30-year fixed-rate mortgages
The 30-year fixed-mortgage rate average is 7.32%, which is a decrease of 21 basis points from seven days ago. (A basis point is equivalent to 0.01%.) A 30-year fixed mortgage, the most common loan term, is a good option if you’re looking to minimize your monthly payment. A 30-year fixed rate mortgage will usually have a lower monthly payment than a 15-year one, but often a higher interest rate.
15-year fixed-rate mortgages
The average rate for a 15-year, fixed mortgage is 6.74%, which is a decrease of 6 basis points from the same time last week. Though you’ll have a bigger monthly payment compared to a 30-year fixed mortgage, a 15-year loan will usually be the better deal if you can afford the monthly payments. You’ll usually be able to get a lower interest rate, pay less interest in the long run and pay off your mortgage sooner.
5/1 adjustable-rate mortgages
A 5/1 adjustable-rate mortgage has an average rate of 6.67%, a downtick of 11 basis points from the same time last week. You’ll typically get a lower interest rate (compared to a 30-year fixed mortgage) with a 5/1 ARM in the first five years of the mortgage. But you could end up paying more after that time, depending on how the rate adjusts with the market rate. For borrowers who plan to sell or refinance their house before the rate changes, an ARM could be a good option. If not, changes in the market may significantly increase your interest rate.
How to find personalized mortgage rates
You can get a personalized mortgage rate by contacting your local mortgage broker or using an online calculator. To find the best home mortgage, take into account your goals and current finances. Be sure to look at the annual percentage rate, or APR, which reflects the mortgage interest rate plus other borrowing charges. By comparing the total cost of borrowing from multiple lenders, you can make a more accurate apples-to-apples comparison.
Your specific mortgage rate will vary based on factors including your down payment, credit score, debt-to-income ratio and loan-to-value ratio. Having a higher down payment, a good credit score, a low DTI and LTV or any combination of those factors can help you get a lower interest rate.
The interest rate isn’t the only factor that affects the cost of your home. Be sure to also consider fees, closing costs, taxes and discount points. You should shop around and talk to several different lenders from local and national banks, credit unions and online lenders to find the best mortgage for you.
Though mortgage rates and home prices are high, the housing market won’t be unaffordable forever. It’s always a good time to save for a down payment and improve your credit score to help you secure a competitive mortgage rate when the time is right for you.
Average mortgage rates surged above 8% this fall, but have fallen below 7.5%. The recent dip in rates has caused demand for home loans to increase over the past month.
However, mortgage rates are still higher than they were a year ago and home affordability remains a key barrier for prospective buyers. “The combination of home prices and still-high rates means affordability remains historically low despite improvement from recent peaks,” Matt Graham, of Mortgage News Daily, told CNET.
The average rate for a 30-year fixed mortgage was 7.23% last week, compared to its peak at 8.09% in October, according to CNET’s sister site Bankrate.
Mortgage rates are determined by an array of economic conditions as well as specific factors like your credit score and loan type. They can also vary widely by lender. Because of this, it’s important to compare loan offers from multiple lenders and choose the offer with the best rate and fees for you.
Read more: Mortgage Rates Could Drop Before 2024. But That All Depends on December’s Economic Data
Today’s mortgage interest rate trends
Mortgage rates started to climb in early 2022, as inflation surged and the Federal Reserve stepped in to tame it by hiking its key short-term interest rate, the federal funds rate. Higher interest rates increase the cost of borrowing money for both banks and consumers.
During its Dec. 13-14 meeting, the Fed will decide what to do next with interest rates. The central bank has been in a holding pattern since its last rate hike on July 26, and most financial analysts expect that to continue into 2024. By holding rates steady, the Fed’s goal is to monitor how its string of rate hikes is affecting inflation, as well as the overall economy.
The recent drop in mortgage rates is in part due to signs of falling inflation and messaging from the Fed that the current rate-hike cycle may be nearing its end.
While this marks the first meaningful decline in mortgage rates in months, average purchase rates are still near a two-decade high. Plus, experts don’t expect a sustained downward trend in mortgage rates just yet.
That’s because inflation, while cooling, is still well above the Fed’s annual 2% target. The Fed is likely to keep interest rates at higher levels for longer. In other words, even if the central bank is done hiking rates, it won’t actually start cutting them until next year, according to market watchers.
Current mortgage and refinance rates
What are today’s mortgage rates?
As of Dec. 7, the average 30-year fixed mortgage rate is 7.42% with an APR of 7.44%. The average 15-year fixed mortgage rate is 6.69% with an APR of 6.72%. And the average 5/1 adjustable-rate mortgage is 6.71% with an APR of 7.85%, according to Bankrate’s latest survey of the nation’s largest mortgage lenders.
Current mortgage rates
Product
Interest rate
APR
30-year fixed-rate
7.32%
7.34%
30-year fixed-rate FHA
6.47%
7.37%
30-year fixed-rate VA
6.57%
6.70%
30-year fixed-rate jumbo
7.39%
7.40%
20-year fixed-rate
7.20%
7.22%
15-year fixed-rate
6.74%
6.77%
15-year fixed-rate jumbo
6.78%
6.80%
5/1 ARM
6.67%
7.89%
5/1 ARM jumbo
6.63%
7.79%
7/1 ARM
6.95%
7.97%
7/1 ARM jumbo
6.86%
7.82%
10/1 ARM
7.61%
7.87%
30-year fixed-rate refinance
7.46%
7.48%
30-year fixed-rate FHA refinance
6.52%
7.46%
30-year fixed-rate VA refinance
6.62%
6.82%
30-year fixed-rate jumbo refinance
7.55%
7.57%
20-year fixed-rate refinance
7.25%
7.27%
15-year fixed-rate refinance
6.77%
6.79%
15-year fixed-rate jumbo refinance
6.79%
6.81%
5/1 ARM refinance
6.59%
7.72%
5/1 ARM jumbo refinance
6.71%
7.54%
7/1 ARM refinance
6.90%
7.89%
7/1 ARM jumbo refinance
6.75%
7.78%
10/1 ARM refinance
7.65%
7.87%
Updated on December 12, 2023.
We use information collected by Bankrate, which is owned by the same parent company as CNET, to track daily mortgage rate trends. The above table summarizes the average rates offered by lenders across the country.
What is a mortgage rate?
Your mortgage rate is the percentage of interest a lender charges for providing the loan you need to buy a home. Multiple factors determine the rate you’re offered. Some are specific to you and your financial situation, and others are influenced by macro market conditions, such as inflation, the Fed’s monetary policy and the overall demand for loans.
What factors determine my mortgage rate?
While the broader economy plays a key role in mortgage rates, some key factors under your control affect your rate:
Your credit score: Lenders offer the lowest available rates to borrowers with excellent credit scores of 740 and above. Because lower credit scores are deemed riskier, lenders charge higher interest rates to compensate.
The size of your loan: The size of your loan can impact the interest rate you qualify for.
The loan term: The most common mortgage is a 30-year fixed-rate loan, which spreads your payments over three decades. Shorter loans, such as 15-year mortgages, typically have lower rates but larger monthly payments.
The loan type: The type of mortgage you choose impacts your interest rate. Some loans have a fixed rate for the entire life of the loan. Others have an adjustable rate that have lower rates at the start of the loan but could result in higher payments down the road.
What’s an annual percentage rate for mortgages?
The annual percentage rate, or APR, is usually higher than your loan’s interest rate and represents the true cost of your loan. It includes the interest rate and other costs such as lender fees or prepaid points. So, while you might be tempted with an offer for “interest rates as low as 6.5%,” look at the APR instead to see how much you’re really paying.
Pros and cons of getting a mortgage
Pros
You’ll build equity in the property instead of paying rent with no ownership stake.
You’ll build your credit by making on-time payments.
You’ll be able to deduct the interest on the mortgage on your annual tax bill.
Cons
You’ll take on a sizable chunk of debt.
You’ll pay more than the list price — potentially a lot more over the course of a 30-year loan — due to interest charges.
You’ll have to budget for closing costs to close the mortgage, which add up to tens of thousands of dollars in some states.
How does the APR affect principal and interest?
Most mortgage loans are based on an amortization schedule: You’ll pay the same amount each month for the life of the loan, but the generated interest will be highest at the beginning and will taper as the principal (the amount you borrowed) decreases. Your amortization schedule will show how much of your monthly payment goes to interest and how much pays down the principal. Most borrowers find a fixed, predictable monthly payment more convenient.
Mortgage lenders often publish their rates for different mortgage types, which can help you research and narrow down where you’ll apply for preapproval. But an advertised rate isn’t always the rate you’ll get. When shopping for a new mortgage, it’s important to compare not just mortgage rates but also closing costs and any other fees associated with the loan. Experts recommend shopping around and reaching out to multiple lenders for quotes, and not rushing the process.
FAQs
Most conventional loans require a credit score of 620 or higher, but Federal Housing Administration and other loan types may accommodate borrowers with scores as low as 500, depending on the lender.
Your credit score isn’t the only factor that impacts your mortgage rate. Lenders will also look at your debt-to-income ratio to assess your level of risk based on the other debts you’re paying back such as student loans, car payments and credit cards. Additionally, your loan-to-value ratio plays a key role in your mortgage rate.
A rate lock means your interest rate won’t change between the offer and the time you close on the house. For example, if you lock in a rate at 6.5% today and your lender’s rates climb to 7.25% over the next 30 days, you’ll get the lower rate. A common rate-lock period is 45 days, so you’re still on a tight timeline. Be sure to ask lenders about rate lock windows and the cost to secure your rate.
Mortgage rates are always changing, and it’s impossible to predict the market. However, most experts think mortgage rates will remain elevated in the short term due to the Federal Reserve’s efforts to fight inflation. Fannie Mae predicts the average rate for a 30-year fixed mortgage will end the year at 7.3%.
“We see a little bit of pickup but not like you normally would because of seasonality,” Overfelt added.
If rates continue to drop, some LOs expect a small ‘bump’ in cash-out refis but traditional rate-term refis won’t be likely in the foreseeable future until rates are in the 5% range, LOs said in an interview with HousingWire.
“We need a continuity in rates”
Rates are quoted differently for every buyer depending on several factors – including their credit score, down payment and loan-to-value (LTV) ratio, as well as how many points they buy down upfront.
In other words, a borrower with a 700 FICO score and a 5% down payment won’t be getting a mortgage rate in the 6% range any time soon. Even a good-not-great borrower profile likely isn’t in the 6s yet without buying points or getting pricing exceptions from their lender.
Though conditions have undoubtedly improved from a dismal fall, mortgage rates today are still far higher than they were about a year ago.
HousingWire’s Mortgage Rates Center showed 30-year conforming rates at 6.998% on Monday. Compared to a year ago, it’s still well above 6.35%.
“If we compare 24 months ago, demand is way off. If I compare two months ago, demand is up. So if you look macro versus micro, you’re going to get a very different picture,” said Shane Kidwell, CEO of Dwell Mortgage. “We hit that point where we saw the worst and so it feels like we’re moving past that. How fast we move past that is up for debate.”
Loan originators are hopeful that mortgage rates will continue to decline as the spread between the 30-year fixed mortgage rates and the 10-year Treasury yield narrows.
Demand for approvals has definitely increased, but homebuyers are waiting to see if they will drop just as fast as they have come down recently, said Robby Oakes, managing director at CIMG Residential Mortgage.
Buyers want to know that they will be able to get a low mortgage rate when they lock in a rate. Rates are too volatile for buyers to have that confidence, Oakes noted.
After a fairly strong jobs report on Friday, rates ticked back up. All eyes will be on the CPI report and Fed meeting this week.
“When rates go up by a point, people sit on the sidelines. When rates go down by a point, people sit on the sidelines because the consumers and the sellers want to know what the market is going to be when they sell the house. We really need an orderly, return to normal rates,” said Oakes.
A potential small refi bump
With about 90% of mortgage holders having a rate below 6%, a traditional refinance boom isn’t likely in the cards for the next few years.
“For somebody to want to do a traditional refinance there has to be a financial incentive, right? They’ve got to be able to see a rate lower than where they are to do a traditional refinance,” said Kidwell.
“Today is not the best day for them to get a refinance. It’s the best day to start thinking about that process and reengaging,” Kidwell noted.
Loan originators say homeowners are reluctant to give up their low-rate first lien mortgages and lean towards tapping into their accumulated home equity through home equity line of credits (HELOCs) even if it means getting a second mortgage with a higher interest rate.
“There is a lot more inquiry for home equity line credit. People are afraid to give up that rate that has a three in front of their mortgage,” said Steinway.
ICE Mortgage Technology estimated tappable home equity – the value borrowers can borrow while still preserving at least a 20% equity stake in the home – was $10.6 trillion as of Q3 2023, nearing its 2022 peak.
“We’ve already seen there is more of a focus on home equity lines of credit and cash out refinances. Borrowers are not doing this because the rate is where they want it to be, their debt is where they don’t want it to be and so they’re consolidating debt or they’re using their equity to purchase something else or to pay something else off,” Kidwell noted.
While loan originators don’t expect a refi boom, they anticipate a small refi ‘bump’ stemming from cash-out refis.
“I think non-traditional refinances (cash-out refis), we’re probably going to see probably more of. Traditional refinances (rate-and-term refi), I don’t think I’d call it a refi boom. I think we might see a small refi bump,” said Kidwell.
Only a mere 14% of originations came from refis in Q3 and cash-out refinance loans fueled what is left of the small refinance market accounting for 92% of the third quarter activity, according to ICE Mortgage Technology.
Meanwhile, it will be a long time before the industry sees a traditional refi boom.
Most LOs don’t expect traditional rate-term refinance demand to return until the second half of 2025 and into 2026.
For 2024, roughly 75% of origination volume is expected to come from purchase loans.
The Mortgage Bankers Association (MBA) expects the 30-year fixed-rate mortgages to come down to 6.1% in 2024, followed by 5.5% in 2025. Fannie Mae has a more conservative outlook expecting rates to average 7.3% in 2024 before declining to 6.9% in 2025.
And for originations business to pick up, a stability of low rates as well as a supply in inventory would have to work in tandem.
“I don’t think things will pick up dramatically because there is still no inventory. Anytime you see rates drop, you can see business pick up. I think what we need is continuity of rates,” said Oakes.