Getting a mortgage is one of the biggest financial decisions you can make. The interest rate you secure dramatically impacts your total costs over the lifetime of your loan. With rates recently surging from all-time lows, many buyers are wondering if they should lock in now or wait it out.
In this comprehensive guide, we’ll cover everything you need to know about today’s mortgage rates, including:
- Current Mortgage Rates and Market Predictions
- Factors That Influence Rate Trends
- Should I Lock My Rate or Float?
- How to Get the Lowest Mortgage Rate
- Tips for First-Time Homebuyers
- Refinancing Your Mortgage
Whether you’re buying your first home, moving up, or refinancing, understanding interest rates is key to real estate success. Read on for advice to help you win in any market!
Current Mortgage Rates
As of December 2022, average 30-year fixed mortgage rates are hovering around 6.5%, though daily fluctuations have swung between 5.8% and 7% this year.
- In 2021, rates averaged under 3%
- In 2020 they sat around 2.5%
- The historic low of 2.65% occurred in January 2021
Financing costs have risen substantially. Buyers once able to secure sub-3% loans are now facing payments 30–50% higher. It’s no longer a given that lower rates make it smart to upgrade your house.
The rapid rate surge relates to shifts in inflation and the Federal Reserve’s monetary policies aiming to slow price growth. Economists expect continued rate volatility into 2023 as the market responds in real-time.
Rising mortgage rates reduce home affordability, pricing some buyers out of the market. But they also motivate fence-sitters to commit before rates potentially rise further.
Factors That Influence Mortgage Rate Trends
Many variables drive average mortgage rates up or down, including:
- Federal Reserve policies – The Fed directly sets benchmark rates like the federal funds rate. Their monetary decisions also influence 10-year Treasury yields, which mortgage rates track. As the Fed fights inflation with rate hikes, mortgage rates follow suit.
- Employment levels – Low unemployment improves consumer borrowing capacity. Lenders can offer lower rates when more people qualify for loans. But overheating job markets spark inflation fears, nudging rates up.
- Economic growth – Faster growth lifts inflation and rates tend to rise in step. Slowdowns have the opposite effect. Recessions even spur occasional rate drops to boost lending.
- Housing inventory: more houses for sale reduces demand pressures that let sellers hike prices. Buyers regain leverage to find affordable deals, and rates often ease. When inventory falls, bidding wars resume, affordability declines and rates climb alongside home values.
Understanding these macro-dynamics provides context for rate swings. But even experts struggle to predict day-to-day movements.
Over long periods, mortgage rates correlate to 10-year Treasury yields. However short-term rates change based on lending competition and consumer demand.
Should I Lock My Mortgage Rate or Let It Float?
With so much rate volatility lately, one key question is whether to lock in your rate or float it until closing.
Rate locks allow borrowers to commit to a lender’s offered rate for 30-90 days. This protects you from rises during home shopping or closing delays. But if rates fall, you lose out on savings from a lower float-down rate.
Here are smart strategies for deciding:
Factors Favoring Rate Locks
- Rates trend upward – Recent hikes signal more to come
- Deals seem ripe to stall – Lock protects against closing delays
- Peace of mind matters most – Pay a premium for certainty
Rates exceed long-term averages, signaling worthwhile security despite short-term floats
Factors Favoring Floating Rates
- Rates show downward momentum – A dip could bring savings
- Closing is weeks out. Maintains shot at a lower rate if trends down
- It fits your risk tolerance – Stomach some uncertainty for optimal timing
Rates seem unsustainably high given economic fundamentals, suggesting reasonable chance of float-down before close
In balanced markets, cost assumptions help decide.
Calculate break-even rates, adding the lock fee lenders charge to today’s rate. If your float rate stays below that level at closing, floating saves money. If not, locking was smarter.
Set rate alerts with your lender to monitor meaningful threshold breaks. Review objectives if volatility shifts assumptions.
How to Get the Lowest Possible Mortgage Rate
While less controlable than in the past, certain strategies still help land better mortgage rates:
Secure Your Financial Health
Lenders offer the best rates to ultra-qualified borrowers unlikely to default. Steps that boost your credit and financial profile:
- Maintain a 700+ credit score
- Lower your debt-to-income ratio by limiting balances
- Show earnest money assets like savings & investment funds
- Keep consistent 2-year job history & income
No rushing! Give yourself 6+ months to demonstrate financial strength before applying.
Shop Multiple Lender Quotes
- Local banks & credit unions
- Online lenders like Quicken Loans or loanDepot
- Mortgage brokers providing wider market access
Casting a wide net surfaces better offers. Underwriting variances produce different rates for equal buyers.
When selecting your lender, leverage competitive quotes to influence more rate drops. Be ready to walk for your target.
Buy Discount Points
Paying points upfront reduces the interest rate over your loan. Calculates costs vs. savings to confirm value.
Explore Nontraditional Options
Ask lenders about special incentives that could score you discounts:
- First-time buyer programs
- Down payment assistance
- Temporary buy-down plans
Extra Tips for First-Time Homebuyers
As a first-timer, don’t let rising rates scare you. Really focus on increasing your approval odds to access better pricing.
- Ask sellers about closing cost assistance – effectively discounts points
- Get guidance from a HUD-Approved Counselor on the process
- Be ready to close quickly once finding “the one” to limit rate risk
- Attend homebuyer classes to access county & state buyer programs
Also know what you can afford at today’s rates, not outdated expectations. This avoids disappointment and stretching beyond safe budgets. Consider if buying now or waiting makes more financial sense for your goals.
Should I Refinance My Mortgage in 2023?
With most existing mortgages charging lower rates than currently offered, refinancing appears illogical. But next year holds uncertainty. An economic slowdown could spur Fed easing and rate drops.
Run the numbers to see if refinancing around 5% optimizes savings. Compare your break-even timeline to an outlook for interest rate trends.
In some cases, it still makes sense:
- If your credit improved significantly since obtaining your current mortgage
- To ditch FHA loans for conventional loans with lower payments
- To tap equity for remodeling, school, or consolidation during low rates
We’ve covered everything you need to know to shop mortgage rates smartly in 2023, whether buying, selling, or refinancing. For specific rate quotes or pre-approval advice, check with multiple lenders to find your best option. Consider both pricing and customer service when deciding on the right mortgage partner.
- Brace for continued rate volatility but monitor Fed moves for stability signs
- Lock rates on upward trends; float rates expecting drops
- Compare multiple lender quotes to save
- Secure the best credit and debt profile possible
- Weight refinancing carefully against rate forecasts
Owning a home remains highly worthwhile despite rising rates. Approach the process educated on today’s market conditions and nimble to find your advantage!
What questions do you still have on mortgage rates or getting approved? Share in the comments below!