Rates for home loans finally seem to be trending downward over the long term.
Wednesday, the Fed announced a federal funds rate increase of 25 basis points. This equates to a new range of 4.50% and 4.75%. This aligns with previous indications that rates will continue upward to contain inflation but at smaller increases through 2023.
At its February 2023 meeting, the Fed signaled in a statement that it anticipates ongoing increases until inflation reaches its peak target range of 5.25% to 5.5%.
George Ratiu, Realtor.com’s director of economic research, stated in an email, “With the Fed committed to monetary tightening until inflation is decidedly moving toward 2%, borrowing costs will remain elevated, keeping housing affordability at the top of the year’s list of challenges.”
According to the latest Consumer Price Index (CPI) report, inflation rose 6.5% for the 12 months ending in December.
Thinking about refinancing? There are some things to know before you begin shopping for a lender. Be aware that while refinancing may produce a lower monthly payment, it may not result in less interest over the life of the loan. For example, refinancing from a 5% mortgage with 26 years left on it to a 4% rate but for 30 years will cause you to pay more than $13,000 in additional interest.
Another factor to consider is the amount of time you wish to stay in your home. Typically closing costs to refinance fall between 2% – 5% of the loan amount. Ensure you stay in the home long enough to recoup the costs and realize the savings from the refinance.
There are other things considered when a lender qualifies you for a rate. The rate you qualify for is based on other factors as well. They include your credit score, debt-to-income (DTI) ratio, loan-to-value (LTV) ratio, and proof of steady income.
The average mortgage rate for a 30-year fixed is 6.51%, nearly double its 3.22% level in early 2022.
The average cost of a 15-year, fixed-rate mortgage has also surged to 5.74%, compared to 2.43% in January 2022.
In the current environment, ARMs might be more affordable than those with fixed rates. The latest average for a 5/1 ARM was 5.37%.
SOURCE: Forbes Advisor | Written By: Robin Rothstein | Published: 02/06/2023
Mortgage Rate Forecast for 2023