The current mortgage rates forecast indicates that rates are likely to remain high compared to recent years but could begin to trend downward if inflation begins to soften as we enter 2024. Rates fell again this week, a promising sign for the upcoming home buying season. Here are the U.S. weekly average rates from Freddie Mac’s Primary Mortgage Market Survey, as of December 7, 2023:
- 30-year fixed-rate mortgage: 7.03%
- 15-year fixed-rate mortgage: 6.29%
Mortgage rates remained largely in the 6% range this year until late August, when they crossed the 7% threshold for the first time since November of last year. As we continue to face inflation, rate hikes from the Federal Reserve remain a looming possibility. However, it’s important to note that even if the Fed increases the federal funds rate, it’s not a given that mortgage rates will follow. In addition, Federal Reserve Chairman Jerome Powell predicted in late June that housing inflation could come down over the next 12 to 24 months.
As a result, it seems reasonable to expect that homeowners stuck with 7% rates or higher will have a decent chance of refinancing to a lower rate in 2024.
→ The Fed’s monetary policy directly affects adjustable-rate mortgages, since their interest rates are calculated using a number — known as an index — that fluctuates with the broader economy.
→ The Fed’s policy only indirectly impacts fixed-rate mortgages, which can move more independently and, in some cases, move in the opposite direction of the federal funds rate.
How are mortgage rates determined?
There are nine primary factors that determine your mortgage rate:
- Your credit score. The higher your score, the lower your interest rate.
- Your down payment amount. Lenders may offer lower rates with a higher down payment.
- Your loan amount. You may get a better mortgage rate for a higher loan amount.
- Your loan program. Interest rates on Federal Housing Administration (FHA) loans and the U.S. Department of Veterans Affairs (VA) loans tend to be lower than conventional loan rates.
- Your loan term. Shorter terms usually equal lower interest rates.
- Your location. Interest rates vary based on where you live.
- Your occupancy. You’ll get the best interest rates financing a home you plan to live in as your primary residence.
- Your property type. Lenders offer the most favorable mortgage rates for single-family homes. You’ll pay a higher interest rate for a mortgage on a condo, manufactured home or multifamily home.
- Economic factors. Inflation, the Federal Reserve’s monetary policy and U.S. Treasury bond yields can influence whether mortgage rates go up or down.
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