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Mortgage rates barely budged in June. Even so, motivated borrowers looking to purchase or refinance a home took advantage of any minor dips.
The national 30-year average fixed-rate mortgage blew past the 6.5% mark the last week of May and hasn’t dropped below since. June’s rate movements began their tight up-and-down ride at 6.79% and ended the month down eight basis points at 6.71%, according to Freddie Mac. Rates rose another 10 basis points to 6.81% for the week ending July 6. A basis point is one-hundredth of one percentage point.
Though housing market watchers expect mortgage rates to remain elevated amid ongoing economic uncertainty and the Federal Reserve’s rate-hiking war on inflation, they believe rates peaked last fall and will decline—to some degree—later this year, barring any unforeseen surprises.
High Mortgage Rates Persist Amid Economic Uncertainty, Fed Policy Goals
Rates for home loans remain caught in a tug-of-war between high inflation and the Federal Reserve’s actions to rein in inflation, which often indirectly pushes long-term mortgage rates higher.
Though Fed policymakers skipped an 11th successive increase to the federal funds rate—the borrowing rate for commercial banks and credit unions—at their June meeting, officials revised the 2023 peak rate projection up to 5.6% from the 5.1% target projected in March.
The Fed’s policy rate is currently in the 5% to 5.25% range.
To determine monetary policy, the Fed considers “a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments,” according to a press statement.
The new projection implies two more rate hikes before the end of 2023 if the Fed proceeds with quarter-point increases.
The indirect impact of more rate hikes portends an increase to the 30-year fixed mortgage rate—which has been inching closer to 7% in recent weeks.
“The market had previously priced in rate cuts by the end of 2023, so there will be an adjustment to these new expectations that could put some upward pressure on interest rates in the near term,” said Danielle Hale, chief economist at Realtor.com, in an emailed statement.
As far as the July meeting and whether the Fed will pause again or raise rates, policymakers will continue to monitor the implications of the data regarding the economic outlook to determine the stance of their monetary policy, according to the statement.
And the possibility of rate cuts in 2023?
“As anyone can see, not a single person on the committee wrote down a rate cut this year,” said Federal Reserve Chair Jerome Powell at a press conference following the committee’s announcement. “Nor do I think it is at all likely to be appropriate.”
The Fed’s hawkish outlook has frustrated some housing experts.
“The rate hikes from earlier months have yet to exert their force at a time when inflation has already decelerated to 4%,” said Lawrence Yun, chief economist at the National Association of Realtors. “There is no need to consider raising interest rates.”
So what’s the best strategy for prospective homebuyers in this uncertain economic climate?
“Be prepared to jump on a dip in rates,” says Robert Frick, corporate economist at Navy Federal Credit Union. “But only if you have a property in mind that fits your budget.”
Mortgage Rate Predictions for July 2023
Here’s how other experts predict market conditions will affect the 30-year, fixed-rate mortgage in the coming months:
- Realtor.com economist Jiayi Xu. [W]e expect a gradual decline that could bring rates near 6% by year-end.
- Fannie Mae. 30-year fixed rate mortgage will average 6.6% for Q3 2023, according to the June Housing Forecast.
- Freddie Mac chief economist Sam Khater. “[W]ith the rate of inflation decelerating, rates should gently decline over the course of 2023.”
- National Association of Realtors (NAR). “[F]orecasts that … mortgage rates will drop—with the 30-year fixed mortgage rate progressively falling to 6% this year and to 5.6% in 2024.”
- First American deputy chief economist Odeta Kushi. “I think it’s reasonable to assume that rates will come down a bit in the second half of the year and stabilize if the Fed takes its foot off the monetary-tightening pedal.”
- Bank of America head of retail lending Matt Vernon. “Bank of America Global Research expects mortgage rates to fall to 5.25% by year-end.”
- Mortgage Bankers Association (MBA) vice president and deputy chief economist Joel Kan. Kan expects mortgage rates to average 5.6% by the end of 2023.
- Rinaldi Group president Stephen Rinaldi. “[R]ates will begin [to] slide into the summer, beginning a slow but relatively steady lowering of interest rates.”
Is 2023 a Good Time To Refinance?
Over 40% of U.S. mortgages originated in 2020 and 2021 when mortgage rates were at record lows. There were also some 14 million mortgage refinances during the same time. If you were lucky enough to secure a mortgage then, chances are 2023 is not the ideal time to refinance.
Even so, anytime rates pull back, more people tend to apply for mortgages. With rates still substantially higher than a year ago, however, purchase and refinance applications remain stuck near their lowest level since the 1990s, according to MBA data.
While refinancing options can lead to a lower monthly payment, not all of the options yield less interest over the life of the loan.
“Remember that just because you can get a lower rate, doesn’t mean you should immediately refinance,” says Matt Vernon, head of retail lending at Bank of America. “You may be paying a lower monthly mortgage, but you may have to also extend the life of your loan and refinancing could cost you more in interest.”
For example, refinancing from a 5% mortgage with 26 years left on it to a new, 30-year mortgage with a 4% rate will cause you to pay more than $13,000 in additional interest.
Before shopping around for a lender, you can find out how much you could save using a mortgage refinancing calculator.
“To make refinancing worthwhile, consider how the closing costs and the breakeven point—the time it will take for you to recover the money it costs to refinance—will affect your overall finances,” says Vernon. In other words, figure out how long you plan on staying in your home as the closing costs can eat up your savings if you sell shortly after refinancing.
Current Mortgage Rate Trends
The average mortgage rate for a 30-year fixed is 7.12%, nearly double its 3.22% level in early 2022.
The average cost of a 15-year, fixed-rate mortgage has also surged to 6.55%, compared to 2.43% in January 2022.
In the current environment, ARMs might be more affordable than those with fixed rates. The latest average for a 5/1 ARM was 6.04%.
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Current Mortgage Rates for July 2023
Current Refinance Rates for July 2023
The current average rates for mortgage refinances are:
- 30-year fixed: 7.21%
- 15-year fixed: 6.75%
- 30-year jumbo: 7.32%
- 5/1 ARM: 5.96%
What Do Current Rates Mean For Refinancing in 2023?
After kicking off 2023 at 6.48%, mortgage rates were topsy-turvy throughout the beginning of the year but have calmed in recent weeks.
Rates stayed within a tight range in June, beginning the month at 6.79% and closing out at 6.71%. Rates rose to 6.81% the first week of July.
Borrowers looking to refinance were sensitive to the incremental mortgage rate movements in June. Refinance volume fell in the first and third weeks of the month and rose in the second and fourth weeks, according to the MBA.
However, even in the weeks when refinance applications were in positive territory, application volume was far below last year.
“Refinance applications accounted for less than a third of all applications and remained more than 40% behind last year’s pace,” said Joel Kan, vice president and deputy chief economist at MBA, in a press statement. “Elevated rates have reduced the benefit of a rate/term refinance for many borrowers and continue to discourage cash-out refinances as borrowers are unwilling to give up their lower rates.”
Despite high rates, 2023 could still be a good time for some homeowners to refinance, especially if rates slip closer to 6% later in the year, as many experts predict.
“[I]f you purchased a home a few years ago and rates were higher than today’s market, you may benefit from refinancing–especially if your credit score has improved,” says Vernon.
Or you still may have personal reasons to refinance either now or soon. For example, perhaps you have an adjustable-rate mortgage (ARM) and want to refinance to a fixed mortgage to secure your current rate or nab a lower rate. Because ARM rates fluctuate after the fixed period ends, refinancing to a fixed-rate mortgage can provide more stability as you plan your financial future.
How To Get a Lower Mortgage Refinance Rate
The good news is that, despite elevated rates, there are methods you can employ to help you negotiate rates down enough that refinancing may make sense, especially if you bought a home between mid-October and early November last year when rates were at their pinnacle.
Because there are closing costs and fees associated with refinancing, many mortgage experts say refinancing only makes sense if you can snag a rate that’s at least 1% lower than your current rate.
Here are some actions you can take to whittle down your refinance rate:
- Get rate quote estimates from at least three lenders
- Ask lenders about waiving or reducing closing costs
- Negotiate with your lender to match the best deal
- Take steps to strengthen your credit score
- Save for a larger down payment
- Choose a shorter-term loan
- Lock in the lowest rate
- Buy discount points
Mortgage Rate Predictions for the Next 5 Years
While predicting mortgage rates for the next five years is a tall order, especially considering the unprecedented fluctuations over the past year, experts say the low housing inventory will be a key factor in where rates go over the long term.
“When rates come down, we’re going to be in store for another hot housing market where there are more buyers than sellers jacking up prices because we haven’t solved the problem” of low inventory, says Daryl Fairweather, chief economist at Redfin. “It’s still that affordability problem. That’s going to stay with us.”
As far as which direction interest rates go in the years ahead, Fairweather expects declines. However, the timeline for this downward trend remains uncertain.
“In every scenario, rates are going to come back down,” she says. “It’s just a matter of when.”
However, experts say there are considerations beyond just low inventory that could potentially impact rates and broader housing market conditions in the coming years.
“The big question over the next five years is whether there are exogenous shocks (such as the war in Ukraine) or a rapid change in consumer sentiment that results in far less economic activity,” says Thomas Booker, head of strategy for Candor Technology. “Over this period, I suspect affordability will continue to be a challenge but if consumers can remain employed and constructive on their future—housing will be just fine.”
What Affects Mortgage Rates?
There are a complex set of factors that impact mortgage interest rates, including broader economic conditions, the monetary actions of the Federal Reserve (to some extent) and inflation. However, long-term mortgage rates are directly impacted by the bond market. The rate you’re offered on a mortgage will also depend on the lender you work with, its business costs and your financial profile.
Demand for mortgages can also affect rates, pushing it higher as available capital for lending tightens. Conversely, when there’s less borrower demand—as we’re seeing now due to average interest rates hovering in the 6% to 7% range—lenders might consider offering more competitive rates or other incentives to attract borrowers.
How to Shop for the Best Mortgage Rate
Getting an optimal rate on a home loan can save you a significant amount of money over time. Here are some tips that can help you get the best rate possible for your situation:
- Keep your eye on rates. Mortgage rates are constantly changing. Keeping a close watch will make it easier to find and lock in a better rate.
- Check your credit. When you apply for a mortgage, the lender will review your credit to determine your creditworthiness as well as your interest rate. In general, the higher your credit score, the better your rate will be. To get an idea of where you stand, check your credit before you apply and dispute any errors with the appropriate credit bureau to potentially boost your score.
- Shop around and compare lenders. Consider options from as many mortgage lenders as possible to find the best deal for you. Prospective buyers have saved more than $1,500 over a loan’s term by getting two quotes from lenders, and saved roughly $3,000 when they sought five quotes, according to Freddie Mac.
Frequently Asked Questions (FAQs)
Mortgage rates are the costs associated with taking out a loan to finance a home purchase. Because properties cost so much, most people can’t pay for them with cash, so they opt to stretch the payments over long periods of time, often as much as 30 years, to make the regular monthly payments more affordable.
When interest rates rise, reflecting changes in the economy and financial markets, so too do mortgage rates—and vice versa.
What is a mortgage rate lock?
A mortgage rate lock is a guarantee that the rate you’re offered in your mortgage application acceptance is the one you will eventually pay, assuming you close within a normal period of time and make no changes to your application.
In a period of rising or volatile interest rates—like the current one—it may be wise to lock in a rate that seems affordable for you.
When should I lock my mortgage rate?
It can be tricky to time any market, and mortgage rates are no exception. If conditions are choppy, and interest rates are likely to rise, it may be smart to lock in a rate that works with your budget and seems fair to you.
Be sure to ask your lender about the consequences of not closing within the timeframe specified in a rate lock agreement and also about what could happen if rates fall after you lock in a rate.