In today’s volatile financial environment, staying informed about the recent trends in mortgage rates can help homebuyers, homeowners, and investors make smarter financial decisions. This article provides a comprehensive insight on the state of mortgage rates as of mid-July 2023, analyzing the fluctuations, factors influencing these rates, and their implications for various types of mortgages.
Key Takeaways
- Mortgage rates for 30-year fixed, 15-year fixed, 5/1 adjustable-rate mortgages (ARMs), and jumbo loans have generally shown a downward trend.
- The Federal Reserve has refrained from increasing interest rates at its June 14 meeting after 10 consecutive rate hikes in 2022 and 2023.
- Mortgage rates are influenced by numerous economic factors, including inflation, unemployment figures, and the overall strength of the economy.
- Homeowners can potentially save significantly by refinancing their mortgages due to historically low interest rates.
- The credit score of a borrower significantly impacts the mortgage rate they receive.
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A Look at the Current Mortgage Rates
As of July 19, 2023, mortgage rates across various terms have seen a general decrease. This includes 30-year fixed, 15-year fixed, 5/1 ARMs, and jumbo loans. The following rates are averages based on the assumptions provided by Bankrate.
| Mortgage Type | Average Rate | Weekly Change |
|---|---|---|
| 30-year fixed | 7.15% | -0.17% |
| 15-year fixed | 6.46% | -0.11% |
| 5/1 ARM | 6.24% | -0.01% |
| Jumbo loan | 7.18% | -0.14% |
Examining the Federal Reserve’s Role
The Federal Reserve’s monetary policy significantly impacts mortgage rates. After increasing interest rates at 10 consecutive meetings in 2022 and 2023, the central bank decided to hold off on an increase at its meeting on June 14. However, housing analysts have differing views on what this implies for the future.
Lisa Sturtevant, the chief economist at Bright MLS, believes that the Federal Reserve’s 2 percent inflation target indicates that the bank will likely resume rate hikes. “It is extremely unlikely that the Fed will back down from that goal, since they have been out so forcefully and consistently with the intent to reach that milestone,” she says. According to Sturtevant, this could elevate the chances of a mild economic recession by the beginning of the coming year if not later this year.
Understanding the Implications of Different Mortgage Rates
When it comes to choosing a mortgage, understanding the implications of different mortgage rates is crucial. Here, we break down the pros and cons of the most common mortgage terms.
30-year Fixed-rate Mortgage
The 30-year fixed-rate mortgage is the most popular mortgage term. Here are its key characteristics:
- Borrowers pay more total interest due to the extended repayment period.
- Lenders charge higher interest rates for 30-year loans due to the increased risk of not being repaid over a longer time frame.
- Equity growth is slower as most of the initial payments go towards interest rather than the principal.
- Borrowers may be tempted to buy a more expensive house than they can comfortably afford.
The average 30-year fixed-mortgage rate is 7.15 percent, a drop of 17 basis points from the previous week. At this rate, borrowers will pay $675.41 per month in principal and interest for every $100,000 they borrow.
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15-year Fixed-rate Mortgage
The 15-year fixed-rate mortgage offers significant savings in total interest paid and accelerated equity growth. Here are its main features:
- Higher monthly payments compared to a 30-year mortgage.
- Thousands of dollars saved over the loan term in total interest paid.
- Faster build-up of equity.
The average 15-year fixed-mortgage rate is 6.46 percent, a decrease of 11 basis points from the previous week.
5/1 Adjustable-rate Mortgage (ARM)
The 5/1 ARM has a floating interest rate, meaning it can change periodically throughout the loan term. Here’s what you need to know:
- Suitable for people who plan to sell or refinance before the first or second adjustment.
- Rates could be significantly higher when the loan first adjusts, and thereafter.
- Monthly payments could increase by hundreds of dollars, depending on the loan’s terms.
The average rate on a 5/1 ARM is 6.24 percent, a slight decrease of 1 basis point from the previous week.
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Jumbo Loan
A jumbo mortgage is a home loan for an amount that exceeds conforming loan limits established by regulation. Here’s what to expect:
- The average jumbo mortgage rate is 7.18 percent, a decrease of 14 basis points from the previous week.
- Borrowers will pay $677.43 per month in principal and interest for every $100,000 they borrow.
A Look at Refinancing Rates
Refinancing your mortgage can help you save significantly over the life of your loan, especially with the current low-interest rates. The average 30-year fixed-refinance rate is 7.32 percent, down 17 basis points from a week ago.
The Future of Mortgage Rates
The current upward trend of mortgage rates indicates a shift from the sub-3 percent rates we’ve seen in the past. This surge can be attributed to the robust economic rebound and rising inflation during the late stages of the pandemic.
Comparing Different Mortgage Terms
Choosing between a 30-year fixed mortgage and a shorter-term loan depends on your financial situation and goals. Here’s a comparison of the advantages of each:
Advantages of a 30-year Fixed Mortgage
- Lower monthly payments spread over a longer duration.
- Stability, as you lock in a consistent principal and interest payment.
- Increased buying power, as lower payments may qualify you for a larger loan amount and a more expensive home.
- Flexibility in budgeting for other financial goals.
- Strategic use of debt, allowing you to save more for retirement.
Advantages of Shorter-term Loans
- Significantly reduced interest costs due to faster loan payoff.
- Lower interest rates offered by most lenders for shorter-term mortgages.
- Faster equity build-up, allowing you to own your home outright sooner.
- Debt-free quicker, as you’ll own your house free and clear sooner than you would with a longer-term loan.
Factors Influencing Mortgage Rates
Mortgage rates are influenced by a host of economic factors, including inflation, unemployment rates, and the overall health of the economy. Typically, higher inflation leads to higher interest rates and vice versa. As the economy strengthens, more people buy homes, driving demand for mortgages and potentially pushing rates higher.
Final Thoughts
In the ever-changing landscape of mortgage rates, staying informed is key. Whether you’re a homebuyer, a homeowner looking to refinance, or an investor, understanding the current mortgage rates and the factors influencing them can help you make sound financial decisions. Always consider your financial situation, goals, and the market conditions before deciding on a mortgage term.
This content is provided for informational purposes only and should not be construed as financial or investment advice. Consult a financial advisor before making significant financial decisions.
Further Reading:
- Loans and programs for first-time homebuyers
- First-time homebuyer mistakes to avoid
- What is mortgage escrow?
- What is a mortgage, and how does it work?
- How to get the best mortgage rate
- Mortgage calculator
- Best mortgage lenders
