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Mortgage rates have calmed down in recent weeks after some volatility earlier this month. The average 30-year fixed rate is still significantly higher than a month ago, but it remains steady below 7%.
On Wednesday, the Mortgage Bankers Association released its latest weekly mortgage applications survey data, which showed mortgage applications fell to their lowest level since 1997.
To beat high interest rates, more and more borrowers are turning to adjustable rate mortgages, which typically have lower interest rates than fixed rate mortgages.
“With rates at these high levels, ARM’s share rose to 12.8 percent of all applications, which was the highest share since March 2008,” said Joel Kan, MBA’s vice president and associate chief economist, in the press release. “ARM loans continue to remain a viable option for borrowers still trying to reduce their monthly payments.”
According to Freddie Mac, the current weekly average 5/1 ARM rate is 5.81% — more than a full percentage point lower than the average 30-year fixed rate.
Mortgage rates today
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Today’s refinancing rates
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Use our free mortgage calculator to see how today’s interest rates will affect your monthly payments:
Your estimated monthly payment
- Pay a 25% you would save yourself a higher down payment $8,916.08 on interest charges
- interest rate reduction 1% would save you $51,562.03
- pay surcharge $500 each month would shorten the loan term by 146 Months
If you click More Details, you can also see how much you will pay over the life of your mortgage, including the amount of principal versus interest.
Mortgage rate forecast for 2023
Mortgage rates started rising from historic lows in the second half of 2021 and are up over three percentage points so far in 2022. They will likely stay near their current levels for the rest of 2022.
But many forecasts assume rates will start falling next year. In their most recent forecast, Fannie Mae researchers predicted that interest rates are now peaking and that 30-year fixed rates will fall to 6.2% by the end of 2023.
The Mortgage Bankers Association also noted that a recession in the first half of 2023 could cause interest rates to fall even faster. It currently estimates that there is a 50% chance that there will be a mild recession next year.
Whether mortgage rates will fall in 2023 depends on whether the Federal Reserve can bring inflation under control.
In the last 12 months, the consumer price index rose by 8.3%. This is only a slight slowdown from last month’s reading, meaning the Fed will likely need to continue raising interest rates aggressively to bring prices down significantly.
If inflation slows, mortgage rates are likely to fall as well. If the Fed acts too aggressively and triggers a recession, mortgage rates could fall further than current projections suggest. But interest rates are unlikely to fall to the historic lows of recent years.
When will house prices go down?
House prices are starting to fall, but we probably won’t see any big drops even if there is a recession.
The S&P Case-Shiller Home Price Index shows that despite falling on a monthly basis in July, prices are still up year-on-year. Fannie Mae researchers expect prices to fall 1.5% in 2023, while the MBA expects prices to rise 2.8% in 2023 and 2.1% in 2024.
Sky-high mortgage rates have squeezed many hopeful buyers, slowing home demand and putting pressure on home prices. But rates could start falling next year, which would take some of that pressure off. The current home supply is also historically low, which will likely prevent prices from falling too far.
What happens to house prices in a recession?
House prices usually fall during a recession, but not always. When it does, it’s generally because fewer people can afford to buy homes and low demand is forcing sellers to lower their prices.
How Much Mortgage Can I Afford?
A mortgage calculator can help you determine how much you can borrow. Play around with different house prices and down payment amounts to see what your monthly payment might be and how that fits into your overall budget.
Typically, experts recommend spending no more than 28% of your gross monthly income on housing. This means that your total monthly mortgage payment, including taxes and insurance, shouldn’t exceed 28% of your monthly pre-tax income.
The lower your interest rate, the more you can borrow. So shop around and get pre-approved by multiple mortgage lenders to see who can offer you the best interest rate. However, remember not to borrow more than your budget can comfortably handle.