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Mortgage rates are up slightly from last week. The average rate on a 30-year mortgage rose 9 basis points this week to 6.95%, according to Freddie Mac.
Experts have long predicted that mortgage rates would soon fall, but those hopes were tempered as inflation remained high earlier this year. Now that inflation is finally declining and the overall economy is showing signs of cooling, interest rates could finally start to fall in the coming months and years.
But it could take some time for home affordability to improve significantly, as interest rates aren't expected to fall anytime soon. In its latest housing forecast, Fannie Mae projected that 30-year rates will be around 6.7% by the end of 2024, down slightly from current levels.
If you're currently shopping for a mortgage, getting quotes from multiple mortgage lenders can help you get the best possible terms while interest rates are still high.
Today's mortgage rates
Mortgage Type Today's Average Interest Rates
This information is provided by Zillow. See more mortgage rates on Zillow. Zillow Real Estate
Today's mortgage refinance rates
Mortgage Type Today's Average Interest Rates
This information is provided by Zillow. See more mortgage rates on Zillow. Zillow Real Estate
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$1,161 Estimated Monthly Payment
Paying a 25% higher down payment would save you $8,916.08 in interest. Lowering your interest rate by 1% would save you $51,562.03. Paying an extra $500 per month would shorten the term of your loan by 146 months.
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Mortgage interest rates forecast for 2024
Mortgage rates rose significantly for much of 2023 but began trending downward again at the end of the year, and as the economy continues to normalize this year, rates should fall further.
Over the past 12 months, the Consumer Price Index has risen 3.3%, a significant slowdown compared to the 9.1% peak it reached in 2022. As inflation slows and the Federal Reserve is able to begin cutting the federal funds rate, mortgage rates are also expected to trend lower.
For homeowners looking to use the value of their home to fund a major purchase, like a home renovation, a home equity line of credit (HELOC) may be a good option while you wait for mortgage rates to drop. Start looking at some of the best HELOC lenders to find the loan that's right for you.
A HELOC is a line of credit that allows you to borrow against the equity in your home. It's similar to a credit card in that you only borrow what you need, rather than a lump sum. It also allows you to tap into the money you have left in your home without having to pay off your entire mortgage like a cash-out refinance would.
Current HELOC interest rates are relatively low compared to other loan options such as credit cards and personal loans.
When will home prices fall?
With supply so limited, home prices are unlikely to fall anytime soon. In fact, they're likely to rise this year as mortgage rates fall.
Fannie Mae researchers expect prices to rise 4.8% in 2024, while the Mortgage Bankers Association expects prices to rise 4.5% in 2024.
Falling mortgage rates are bringing more buyers into the market, putting upward pressure on prices, but prices are currently not expected to rise as much as they have in recent years.
The pros and cons of fixed and adjustable rate mortgages
With a fixed-rate mortgage, your interest rate remains constant for the life of the loan, while with an adjustable-rate mortgage, your interest rate remains constant for the first few years and then increases or decreases periodically thereafter.
So, should you choose between a fixed rate mortgage or an adjustable rate mortgage?
ARMs usually start at a lower interest rate than fixed-rate mortgages, but your ARM interest rate may increase after the initial introductory period. If you plan to move or refinance before your interest rate adjusts, an ARM could be a good deal. Keep in mind, however, that changes in your circumstances may prevent you from doing these things. So it's a good idea to consider whether your budget can accommodate the increased monthly payments.
Fixed-rate mortgages are a good option for borrowers looking for stability, as their monthly principal and interest payments will remain the same for the life of the loan (although if taxes or insurance rates rise, your mortgage payments may increase).
But in exchange for this stability, you'll pay higher interest rates. This may seem like a bad deal now, but if interest rates rise further in the future, you may be glad you locked in your rate. And if rates fall, you may be able to refinance and get a lower rate.
How do adjustable rate mortgages work?
An adjustable rate mortgage starts with an introductory period during which your interest rate is fixed for a set period of time, and once that period ends, your interest rate begins to adjust periodically, usually once a year or every six months.
How much your interest rate will change depends on the index used by the ARM and the margin set by the lender. Lenders choose the index their ARM uses, and this interest rate can go up or down depending on current market conditions.
Margin is the amount of interest that a lender charges on top of the index. You should compare multiple lenders to find out which one offers the lowest margin.
ARMs also have limitations on how much you can change and how much you can change – for example, an ARM may be limited to increasing or decreasing by 2% with each adjustment, with a maximum rate of 8%.
Molly Grace
Mortgage Reporter