Mortgage interest rates are a crucial factor in real estate, one that impacts both homebuyers and homeowners. As the second half of 2023 unfolds, people are wondering which way interest rates will go.
To get a better understanding of this, here’s an overview of mortgages in general and an analysis of where interest rates trends may take us for the rest of the year. By understanding these trends and factors, homebuyers and homeowners can make informed decisions about their real estate investments, which are typically the largest purchases in their financial lives.
Purchasing a home in most cases requires the buyer to obtain a home loan to complete the transaction. These loans, known as mortgages, can be secured through lenders such as credit unions, mortgage loan companies or banks. Lenders will charge interest on the loan for the entire loan term, with borrowers paying both principal and interest in their monthly mortgage payment. The higher the interest rate, the more it will cost borrowers through the life of the loan.
Today, the mortgage market has seen a rise in interest rates due to the Federal Reserve increasing the federal funds rate, which is the target interest rate set by the Fed and at which commercial banks borrow and lend to each other. The Federal Reserve wants to lower inflation, which is historically high right now. There are some signs this decline is happening, and we’ll take a look at what that will mean for interest rates over the next year.
Current State of Mortgage Rates
As of May 18, 2023, mortgage interest rates remained high compared to the past few years, at 6.39% for a 30-year fixed rate mortgages, which was a 0.04% increase from the previous week, according to Forbes Advisor. Interest rates continued to climb despite the Federal Reserve’s repeated attempts to lower them.
During the height of the COVID-19 pandemic, consumer spending was at an all-time low and declining interest rates on mortgages made it less expensive for people to borrow for mortgages and easier to buy homes. This, in turn, created a lower home inventory. This lack of inventory has caused home prices to, in turn, rise.
Factors that Influence Interest Rates
Inflation remains a major issue for the U.S. economy. The Federal Reserve continues to adjust its policy to keep inflation in check and hopes to lower it. These increases in mortgage interest rates have been tied to inflation since 2022.
Another factor that influenced interest rates today is the demand for homes and home loans. The housing market saw a lower supply and higher demand when mortgage rates were lower, which created a more competitive market that then raised home prices. If there is less demand for homes, interest rates could fall, creating opportunities for more buyers.
What’s Next for Rates
Some experts predict that later in 2023 the housing market may see mortgage rates fall because of the efforts to lower inflation. Economists believe that there might also be a modest recession.
There is also speculation that inflation has peaked, and the Federal Reserve will slow the pace of the rate hikes. This would allow mortgage interest rates to fall to a predicted 5.5% by the end of 2023, according to the Mortgage Bankers Association. Some economists believe that rates could end in the high 5% by the end of 2023, according to experts from Fannie Mae.
Tips for Homebuyers and Homeowners
Mortgage rates play a major role in the timing of buying a home. When rates are high, it makes it more expensive to borrow but the housing market is less competitive. When rates are low, you’ll pay less for your home, but you’ll face more competition and a limited housing inventory.
For existing homeowners, high rates make it harder to refinance and lower their monthly payments. In the long run, you can expect to pay more in interest as rates move up from the historic lows of the past few years.
Here are some tips to help ensure you qualify for the lowest interest rates possible with lenders.
- Track interest rates: Keep an eye on the economic landscape to spot trends in mortgage rates. Are rates constantly changing? Which ways are they trending? Knowing how the market is reacting will help you decide when it is the right time to buy or refinance a home. By monitoring rate trends, you can wait for the rate you want and lock it in with your lender, according to Forbes Advisor.
- Monitor your credit score: Monitoring your credit report and score can ensure you get the best interest rate possible when you apply for a home loan. Your credit report, which you can get for free at annualcreditreport.com, will allow you to identify any issues with your credit that you can fix before you apply. Your credit score will give you an idea what your interest rate will be when you pre-qualify for a mortgage. The higher your credit score, the lower your rate.
- Shop for the best rates: Shopping around for the right lender can help get you the best rate possible. Identify your top lenders and get quotes from them so you can compare interest rates and loan features. Potential homebuyers have saved up to $3,000 over the life of the loan by getting quotes from two to five lenders, according to Freddie Mac.
TCU Can Help
Travis Credit Union can help with your home-buying journey. Our knowledgeable mortgage loan consultants will help identify the right loan for you, walk you through the entire process and answer all of your questions along the way. From pre-qualification to closing escrow, Travis will be with you every step of the way.
TCU can also help in other ways to prepare you for homeownership. Save for your down payment with our high-yield Money Market and Certificate accounts. Our Money Market Accounts offer the flexible terms you need with the competitive interest rates you want. Open an account today!