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Mortgage rates fall to new 3-year low — but homebuyers aren’t impressed

The average 30-year mortgage rate fell to 6.16% this week, down from 6.23% last week, according to Bankrate's weekly survey of lenders. Mortgage rates are now at their lowest levels since September 2022.

You’d think that would translate to more homebuying activity. But despite lower mortgage rates — they’ve been at 6.3% or lower since December — home sales are sluggish. The National Association of Realtors (NAR) said January home sales fell 8.4% from the previous month and 4.4% from the previous year to an annual rate of fewer than 4 million. For context, a typical pace of sales was 6 million during the pandemic and 5 million before the pandemic.

“It is a big decline. It’s a disappointment,” NAR Chief Economist Lawrence Yun told reporters Feb. 12. “Clearly, lower mortgage rates should have brought more buyers to the market.”

One factor suppressing activity might be Americans’ economic and job security concerns. The U.S. Bureau of Labor Statistics’ January jobs report showed a better-than-expected pace of job creation, but that was offset by tepid readings elsewhere.

“There are other signs that the labor market is weakening, including fewer job openings and rising claims for unemployment insurance,” says Lisa Sturtevant, chief economist at BrightMLS, a large listing service in the mid-Atlantic region. “The Fed is closely watching the labor market data.”

The central bank’s next meeting is in mid-March. While the Fed influences the overall interest rate picture, it doesn’t directly control mortgage rates, and it’s possible for mortgage rates to rise even after the Fed cuts its benchmark rate — that’s what happened in 2024.

Meanwhile, the consensus among housing economists at the Mortgage Bankers Association (MBA), Fannie Mae and elsewhere is that 30-year mortgage rates will hold above 6% for the rest of the year.

“MBA’s forecast has been for mortgage rates to remain in a relatively narrow trading range for the foreseeable future, likely remaining between 6% and 6.5% for 30-year conforming loans," says Michael Fratantoni, the group’s chief economist.

Learn more: Weekly mortgage rate trend predictions

The rates you see advertised here might not match the rate you're offered. That’s because mortgage rates are influenced by personal factors, like your down payment and your debt. And different lenders may offer you different mortgage rates and fees based on their business needs. 

That’s why it’s important to shop with multiple lenders — it can save you over $1,000 a year, according to research from Freddie Mac.

Here’s how to compare mortgage rates:

• Ensure you’re comparing the same loan type. If one rate is significantly higher or lower than another, make sure it’s for the same type of product. A government-backed loan, like an FHA or VA loan, won’t have the same rate as a conventional mortgage.
• Consider APR and mortgage rate. Your interest rate is one cost of borrowing money, but your APR includes that as well as other fees associated with your loan, making it a more complete picture of the actual cost. Some lenders charge lower rates on mortgages, but higher fees.
• Get quotes from different types of lenders. You may find different costs from a local bank or credit union compared with a national bank or an online lender. 

How your mortgage rate affects your monthly payment

Your mortgage rate impacts how much you pay month to month — sometimes by a lot. For this example, we’re using the principal and interest payment on a $400,000 house, assuming 20% down and a 30-year fixed-rate mortgage.

As you can see, every increase of half a percentage point between 5% and 7% changes the monthly payment by around $100. On a yearly basis, that’s a difference of $1,200. For more expensive homes, this difference is even larger.

How your mortgage rate is determined

Your mortgage rate depends on a number of factors, including your individual credit profile and what’s happening in the broader economy. These include:

• Your lender: Lenders set rates based on many factors, including their own supply and demand.
• Your credit and finances: The better your credit score and the higher your income compared to your debt, the better the interest rate you’ll likely get.
• Your loan size and type: The size of your loan, your down payment and the type of loan all affect your mortgage rate. For example, making a bigger down payment typically earns you a lower mortgage rate, as it reduces the lender’s risk. 
• Economic factors: Broadly, mortgage rates are impacted by forces like the Federal Reserve, inflation and investor appetite.
• Mortgage points: Also known as discount points, these are upfront fees you can pay to reduce your interest rate. Decide whether they're worth it with our guide to mortgage points.

How to refinance your current mortgage

Before you start applying for a mortgage, here are some mortgage resources to prepare you for the process: