Mortgage industry insights

Fed continues rate hikes, mortgage rates over 6.5 percent

The average fixed-rate mortgage costs 6.6 percent, up a bit from last month, Bankrate’s national survey of large lenders shows. The Federal Reserve raised interest rates yet again at its March meeting, once more by a quarter of a percentage point. Previous rate hikes had been half a percentage point or three-quarters of a percentage point.

Some analysts had speculated The Fed might not continue its inflation-fighting hikes in the wake of the turmoil in the banking industry, sparked by the collapse of two financial institutions earlier in March. The news had caused mortgage rates to drop significantly in response, though they’ve since recovered somewhat.

“As for where rates go from here, it will depend largely on the stability of the financial system,” says Greg McBride, chief financial analyst for Bankrate. “If things stabilize and we’re back to worrying about inflation and whether the job market is too hot, the pullback will prove short-lived.”

McBride is among the ranks of analysts who believe fixed mortgage rates eventually will fall below 6 percent in 2023 as inflation slows.(The central bank’s actions don’t directly drive fixed mortgages’ moves, but the Fed does sway 10-year Treasury yields — which are strongly correlated to mortgage rates.) "The Fed continuing to raise short-term interest rates actually portends lower — not higher — long-term rates, including mortgage rates,” he says. “The more the Fed raises rates now, the less those bond investors will need to fret about inflation and the greater the risk of a recession, when investors stampede into bonds."

Learn what the experts predict in Bankrate’s forecast.

How to compare 30-year fixed mortgage rates

If you compare loan offers from mortgage lenders, you’ll have a better chance of securing a competitive rate. Here’s how:

1. Get preapproved: Get rate quotes from at least three mortgage lenders, ideally on the same day so you have an accurate basis for comparison. Lenders determine your interest rate based on your credit score, debt-to-income (DTI) ratio and other factors, including the size of your down payment. Working on those variables will help you land the best deal.
2. Compare the annual percentage rate (APR): The APR reflects some of the expenses you’ll incur for the loan, such as the origination fee and any points, in addition to the interest rate.
3. Consider the lender’s ratings and your experience: Aside from the numbers, evaluate other factors such as convenience or the lender’s responsiveness. Take a look at what other borrowers have had to say about the lender, too.

It’s important to shop around for a mortgage to make sure you’re getting the best deal. Bankrate’s mortgage amortization calculator shows how even a 0.1 percent difference on your rate can translate to thousands of dollars you could pay over the life of the loan.

Finding the lowest-advertised rate won’t mean much, however, if your credit score or debt puts you out of range for the best offers. Generally, borrowers with a credit score of 740 and up, a substantial down payment (20 percent is ideal, but not required) and a DTI ratio of no more than 43 percent score the most attractive offers.

Some lenders still cater to borrowers that don’t meet these criteria, offering competitive rates even if your credit or finances aren’t up to par. That’s another reason why it pays to shop around.

Comparing mortgage rates can also pay off especially in a volatile climate like the one we’re in today. With rates on the rise and fluctuating so frequently, it’s often helpful to understand overall rate trends before locking in your own.

Pros and cons of a 30-year mortgage

Choosing the right home loan is an important step in the homebuying process, and you have options based on your credit score, income, down payment amount, budget and financial goals. Here are the main pros and cons of a 30-year fixed mortgage:

Pros

• Lower monthly payment: Repaying a mortgage over 30 years means you’ll have lower, more affordable payments spread out over time compared to shorter-term loans like 15-year mortgages.
• Stability: Having a consistent principal and interest payment helps you better map out your housing expenses for the long term. (Your overall monthly housing expenses can change, however, if your homeowners insurance and property taxes go up or down.) Of course, this is only true if your mortgage has a fixed rate. An adjustable-rate mortgage won’t give you this same benefit for the whole life of the loan.
• Buy more house: With lower payments, you might be able to qualify for a larger loan amount and might be able to afford a more expensive home.
• More financial flexibility: Lower monthly payments can provide more cushion in your budget for other goals, like saving for emergencies, retirement, college tuition or home repairs and maintenance.

Cons

• More total interest paid: Stretching out repayment over 30 years means you’ll wind up paying more in interest overall than you would with a shorter-term loan.
• Higher mortgage rates: Lenders usually charge higher interest rates for 30-year loans because they’re taking on the risk of not being repaid for a longer amount of time.
• Becoming house poor: Just because you might be able to afford more house with a 30-year loan doesn’t mean you should overstretch your budget. Give yourself some breathing room for other financial goals and unexpected expenses.
• Slower equity growth: It will take longer to build equity in your home because most of your initial mortgage payments will go towards interest rather than paying down your principal amount.

FAQs about 30-year mortgages

Additional resources to find the best mortgage for you

• Mortgage calculator: Estimate your monthly payment and see how much house you can afford
• 15-year mortgage rates: If a shorter mortgage term makes sense for you, start shopping here
• First-time homebuyer grants and programs: Get financial assistance to lower your down payment and closing costs