HomeBusinessRates are lower than 6 months ago

Rates are lower than 6 months ago

Fixed mortgage rates have risen across the board. According to Freddie Mac, the 30-year fixed rate rose six basis points this week, and the 15-year fixed rate rose 10 points. While these aren’t drastic jumps, it can still be discouraging if many potential homebuyers were hoping that interest rates would go down in 2024.

However, if you look at longer-term interest rates, the picture does not seem so bad. In mid-October, the 30-year interest rate was 69 basis points higher than now and well above 7%. The 15-year yield was 73 basis points higher. So while interest rates may not drop this week, they are still lower now than if you had bought a house six months ago.

When the Federal Reserve cuts the federal funds rate, mortgage rates will likely fall in response. However, according to the CME FedWatch Tool, there is a roughly 98% chance that the Fed will keep its interest rate the same at its next meeting on May 1. So we probably won’t see drastic changes anytime soon. If you’re ready to buy a home but are waiting for interest rates to drop first, it may not be worth the wait.

Learn more: What the Fed’s interest rate decision means for bank accounts, CDs, loans and credit cards

Current mortgage interest rate

The national average mortgage interest rate with a term of 30 years is 6.88%, according to Freddie Mac. This is a slight increase compared to last week, when the percentage was 6.82%.

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The average mortgage interest rate with a fixed term of 15 years has also risen. The 15-year rate is 6.16%an increase from last week’s 6.06%.

Read more: Is it a good time to buy a house?

30-year mortgage rate today

The average 30-year mortgage rate is currently 6.88%. A term of 30 years is the most popular mortgage type, because by spreading your payments over 360 months your monthly costs are relatively low.

If you had a $300,000 mortgage with a 30-year term and an interest rate of 6.88%, you would pay $1,971.79 in principal and interest on your mortgage every month. You’ll also pay $409,844 in interest over the life of your loan, making a $300,000 mortgage a total of $709,844.

Mortgage interest rate with a term of 15 years today

The average 15-year mortgage rate is currently 6.16%. When choosing between a 15- or 30-year mortgage, there are several factors to consider.

A mortgage with a term of 15 years has a lower interest rate than a mortgage with a term of 30 years. This is great in the long run because you’ll pay off your loan 15 years sooner, which is 15 fewer years before interest accrues.

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However, because you’re squeezing the same debt payment in half the time, your monthly payments will be higher.

Suppose you get the same $300,000 mortgage, but this time with a 15-year term and an interest rate of 6.16%. Your monthly principal and interest payment would amount to $2,557.58, but you will only pay $160,364 in interest over 15 years. Ultimately, you will save almost € 250,000 in interest on your mortgage.

Dig deeper: How much house can I afford?

Adjustable mortgage rate

With a variable-rate mortgage, your interest rate is fixed for a specific period and then increased or decreased periodically. For example, with a 5/1 ARM, your rate stays the same for the first five years and then changes every year.

Adjustable rates usually start lower than fixed rates, but you run the risk of your rate increasing once the introductory interest rate setting period is over. But an ARM can be a good solution if you plan to sell the house before your fixed-rate period expires. This way you pay a lower rate without having to worry that it will increase later.

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How do you get a low mortgage interest rate?

Mortgage lenders typically give the lowest mortgage rates to people with higher down payments, excellent credit scores and a low debt-to-income ratio. So if you want a lower rate, try saving more, improving your credit score, or paying off some debt before you start buying homes.

Learn more: How to get the lowest mortgage interest rate

You can also permanently buy out your interest by paying for discount points at closing. A temporary interest rate buydown is also an option. For example, you might get a 7% interest rate on a 2-1 buydown. Your rate starts at 5% for the first year, increases to 6% for the second year, and then settles at 7% for the remainder of your term.

Just think about whether these closing buydowns are worth the extra money — earlier this month, the Consumer Financial Protection Bureau (CFPB) reported that the number of homebuyers paying for discount points increased dramatically between 2021 and 2023, especially among people with lower credit scores. Before you make a decision, ask yourself whether you will live in the home long enough that the amount you save with a lower rate will offset the cost of lowering your rate.

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