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Both the average 30-year and 15-year fixed mortgage rates rose last week, according to Freddie Mac. The increases were higher than the previous two weeks, and it marked the third week in a row that the 30-year rate moved higher.
“As rates trend higher, potential homebuyers are deciding whether to buy before rates rise even more or hold off in hopes of decreases later in the year,” Sam Khater, chief economist at Freddie Mac, said in a press release. “Last week, purchase applications rose modestly, but it remains unclear how many homebuyers can withstand increasing rates in the future.”
Mortgage rates probably won’t dramatically fall until the Federal Reserve starts cutting the federal funds rate — and the Fed doesn’t want to make cuts until inflation is closer to its target rate of 2%. The year-over-year inflation increase was 3.5% in March, so we may have to wait several more months until the Fed is ready to decrease its rate.
What does this mean for potential homebuyers? Don’t count on rates dropping during the spring and summer home-buying season. If you’re otherwise ready to buy now, consider buying a house sooner rather than later. Remember, you can always refinance into a lower rate down the road.
Dig deeper: Is it a good time to buy a house?
According to Freddie Mac, the national average 30-year mortgage fixed rate this week is 7.10%. This is a 22-basis-point increase from the week before.
The average 15-year fixed rate rose, too. The 15-year rate is 6.39%, which is up 23 basis points since the week prior.
As a rule of thumb, 15-year mortgage rates are lower than 30-year mortgage rates. When comparing 15- versus 30-year mortgage rates, know that the shorter term will save you money on interest in the long run. However, your monthly payments will be higher because you’re paying off the same loan amount in half the time.
For example, with a $400,000 30-year mortgage and a 7.10% rate, you’ll make a monthly payment of $2,688.13 toward your principal and interest. As interest accumulates and compounds over decades, you’ll end up paying $567,726 in interest.
If you get a $400,000 15-year mortgage with a 6.39% rate, you’ll pay $3,460.29 monthly toward your principal and interest. However, you’ll only pay $222,852 in interest over the years.
Learn more: How much money do I need to buy a house?
With a fixed-rate mortgage, your rate is locked in from day one. You will get a new rate if you refinance your mortgage, though.
An adjustable-rate mortgage keeps your rate the same for a set period of time. Then the rate will go up or down depending on several factors, such as the economy and the maximum amount your rate can change according to your contract. For example, with a 7/1 ARM, your rate would be locked in for the first seven years, then change every year for the remainder of your term.
Adjustable rates typically start lower than fixed rates, but once the initial rate-lock period ends, you risk your interest rate going up.
In Fannie Mae’s latest rate forecast, the government-sponsored enterprise said it expects 30-year fixed rates to end 2024 at 6.4%. The Mortgage Bankers Association also predicts the rate will drop to 6.4% by the end of the year. So while rates will likely go down in 2024, the drop might not be as drastic as people were expecting at the end of last year.
The trajectory of future mortgage rates will largely depend on the Federal Reserve’s decision on whether or not to cut the federal funds rate at its meetings throughout the year. The federal funds rate doesn’t directly impact mortgage rates, but it is a good indicator of how the economy is doing overall. So when the Fed rate drops, mortgage rates typically go down, too.
Learn more: What the Fed rate decision means for bank accounts, CDs, loans, and credit cards