What is a good mortgage rate?
A “good” mortgage rate is different for everyone. In today's market, a good mortgage interest rate can fall in the mid-6% range, depending on several factors, such as the type of mortgage, loan term, and individual financial circ*mstances.
Interest rates for the most popular 30-year fixed mortgage averaged around 6.34% in January 2024, according to Zillow data. Rates for 15-year mortgages, which are also relatively popular, were 5.62%.
But there is a tipping point, recent reports found: Homeowners are nearly twice as willing to sell their home if their mortgage rate is 5% or higher, according to Zillow, and 71% of prospective homebuyers who plan to purchase their next home with a mortgage said they would not accept a rate above 5.5% — that is the " ...
"If you have a 30-year fixed rate ranging from 2.5 percent to 4.0 percent, you should hold on to the property for as long as you can," Herman explains. "If you have a mortgage rate higher than 4 percent, it may make sense to sell your home.
Mortgage Rates for Home Purchase
The average 30-year fixed-mortgage rate is 7.47%.
Top-tier borrowers could see mortgage rates in the mid-6% range, while lower-credit and non-QM borrowers could expect rates well above 7%. Of course, mortgage rates are famously volatile and it's possible a good mortgage rate next year might be substantially higher than what it is today.
Here's what to expect. The average interest rate on typical 30-year mortgages has stayed between 6% and 7% for the last several months, roughly double what it was at the end of 2021 and early 2022. The median home price in January was $383,000, which is about 1.5% higher than a year earlier.
Therefore, unless inflation slows down significantly in the coming months, it is unlikely that mortgage rates will fall back to 3% anytime soon. In fact, some experts predict that mortgage rates could reach 10% by 2025.
After hitting record-low territory in 2020 and 2021, mortgage rates climbed to a 23-year high in 2023. Many experts and industry authorities believe they will follow a downward trajectory into 2024.
Inflation and Fed hikes have pushed mortgage rates up to a 20-year high. 30-year mortgage rates are currently expected to fall to somewhere between 5.9% and 6.1% in 2024.
Is a 2% mortgage rate possible?
30-year rates have marched from 16.63% in 1981, to just 3.13% in June 2020. Many wouldn't have thought it possible 20 years ago — or even one year ago — but rates in the low-3% range are now being widely quoted. And rates in the 2s are a reality for some.
Mortgage Bankers Association (MBA).
MBA's baseline forecast is for mortgage rates to end 2024 at 6.1% and reach 5.5% at the end of 2025 as Treasury rates decline and the spread narrows.
Because interest is calculated against the principal balance, paying down the principal in less time on your mortgage reduces the interest you'll pay. Even small additional principal payments can help. Here are a few example scenarios with some estimated results for additional payments.
Some lenders offer a mortgage rate lock once the borrower is preapproved with just the address of a prospective home. Others might wait for the seller to accept the buyer's offer. If you lock in too early, however, you might end up exceeding the expiration date and facing extension fees or a new rate.
| Product | Interest Rate | APR |
|---|---|---|
| 10-Year Fixed Rate | 6.70% | 6.78% |
| 5-1 ARM | 6.48% | 7.82% |
| 10-1 ARM | 7.32% | 7.89% |
| 30-Year Fixed Rate FHA | 6.67% | 6.72% |
Thirty-year fixed mortgage rates hit their peak at 18.63% in October 1981. This was likely due to high inflation following the OPEC embargo.
| 10-Year Mortgage Monthly Payment | 30-Year Mortgage Monthly Payment | |
|---|---|---|
| 6% Interest Rate | $4,441 | $2,398 |
| 7% Interest Rate | $4,644 | $2,661 |
| 8% Interest Rate | $4,853 | $2,935 |
At a 7.00% fixed interest rate, a 30-year $100,000 mortgage may cost you around $665 per month, while a 15-year mortgage has a monthly payment of around $899.
The average 30-year fixed rate reached an all-time record low of 2.65% in January 2021 before surging to 7.79% in October 2023, according to Freddie Mac.
As of Dec. 18, 2023, FICO reports that with a 750 credit score, the annual percentage rate (APR) on a 30-year fixed-rate conventional mortgage for $300,000 would be 6.416%. The monthly payment would be $1,880.
What APR can I get with 800 credit score?
A credit score of 800 will generally qualify you for a lender's best interest rates. As a real-world example, the average 30-year fixed mortgage interest rate was just over 7% as of late October 2022. However, the average rate paid by a homebuyer whose FICO credit score was 760 or higher was 6.583%.
| FICO Score | APR % | Monthly Payment |
|---|---|---|
| 760 – 850 | 3.408 | $888 |
| 700 – 759 | 3.63 | $913 |
| 680 – 699 | 3.807 | $933 |
| 660 – 679 | 4.021 | $957 |
If all goes well, by the time 2025 comes around, we could see mortgage rates closer to 6%, or maybe even lower.
However, there are some general things we can say about the conditions in which mortgage rates tend to rise. Typically, mortgage rates are rising because inflation is going up and the Federal Reserve has changed the target on the federal funds rate to get prices back under control.
Based on recent data, Trading Economics predicts a rise to 5% in 2023 before falling back down to 4.25% in 2024 and 3.25% in 2025.
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