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As expected, Federal Reserve officials voted to raise the federal funds rate by a quarter of a percentage point at its July meeting, which wrapped up on Wednesday. This move was expected and won’t have much impact on mortgage rates. The commentary coming out of the meeting, however, might.
Though they rose rapidly in the first half of July, mortgage rates plunged a couple of weeks ago and inched down further today. Average 30-year mortgage rates have been hovering in the 6.4% to 6.6% range this week.
At his press conference following the Fed rate hike announcement, Chair Jerome Powell stated that the central bank is taking a “data dependent approach” when it comes to future rate hikes, noting that Fed officials will have a lot of additional economic data — including two jobs reports and two Consumer Price Index reports — to evaluate ahead of its September meeting.
What does this mean? Essentially, the Fed hasn’t made any decisions yet on whether or not it will hike rates again this year. If inflation continues to slow and the labor market cools, it’s possible Fed officials will opt to keep rates at their current level at future meetings. This would likely keep mortgage near their current levels or even allow them to trend down somewhat.
Changes to the federal funds rate don’t directly impact mortgage rates, but investor expectations around how Fed policy will impact the broader economy can. Mortgage rates have increased dramatically since the Fed started raising rates last year, and they’re likely to remain high for at least the next couple of months.
“[T]he extension of the current high-rate environment is beginning to have lasting, damaging impacts on housing affordability, which is lowest in 40 years,” Selma Hepp, chief economist at CoreLogic, said in an emailed statement. “Not only are mortgages the priciest we’ve seen in modern memory, but higher mortgage rates continue to keep existing borrowers locked into their homes and, as a result, inventory of homes for sale is at an historical low. The imbalance between demand and supply is putting pressure on home prices again, which may result in reacceleration of housing inflation — not something the Fed is looking for.”
Mortgage Rates Today
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Use our free mortgage calculator to see how today’s interest rates will affect your monthly payments.
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30-Year Fixed Mortgage Rates
This week’s average 30-year fixed mortgage rate is 6.78%, according to Freddie Mac. This is an 18-point decrease from the previous week.
The 30-year fixed-rate mortgage is the most common type of home loan. With this type of mortgage, you’ll pay back what you borrowed over 30 years, and your interest rate won’t change for the life of the loan.
The lengthy 30-year term allows you to spread out your payments over a long period of time, meaning you can keep your monthly payments lower and more manageable. The trade-off is that you’ll have a higher rate than you would with shorter terms or adjustable rates.
15-Year Fixed Mortgage Rates
The average 15-year fixed mortgage rate is 6.06% this week, according to Freddie Mac data. This is down 24 basis points from the prior week.
If you want the predictability that comes with a fixed rate but are looking to spend less on interest over the life of your loan, a 15-year fixed-rate mortgage might be a good fit for you. Because these terms are shorter and have lower rates than 30-year fixed-rate mortgages, you could potentially save tens of thousands of dollars in interest. However, you’ll have a higher monthly payment than you would with a longer term.
How Do Fed Rate Hikes Affect Mortgages?
The Federal Reserve has increased the federal funds rate dramatically to try to slow economic growth and get inflation under control. So far, inflation has slowed, but it’s still above the Fed’s 2% target rate.
Mortgage rates aren’t directly impacted by changes to the federal funds rate, but they often trend up or down ahead of Fed policy moves. This is because mortgage rates change based on investor demand for mortgage-backed securities, and this demand is often impacted by how investors expect Fed hikes to affect the broader economy.
As inflation starts to come down, mortgage rates should, too. But the Fed has indicated that it’s waiting for inflation to come down further, which means that more rate hikes could be coming this year.
When Will Mortgage Rates Go Down?
Mortgage rates increased dramatically in 2022 and have been volatile so far in 2023, but they’re expected to trend down later this year.
In June 2023, the Consumer Price Index rose 3% year-over-year, a significant slowdown compared to the previous month. This is good news for mortgage borrowers and the broader economy.
As inflation comes down, mortgage rates likely will, too.
For homeowners looking to leverage their home’s value to cover a big purchase — such as a home renovation — a home equity line of credit (HELOC) may be a good option while we wait for mortgage rates to ease. Check out some of our best HELOC lenders to start your search for the right loan for you.
A HELOC is a line of credit that lets you borrow against the equity in your home. It works similarly to a credit card in that you borrow what you need rather than getting the full amount you’re borrowing in a lump sum. It also lets you tap into the money you have in your home without replacing your entire mortgage, like you’d do with a cash-out refinance.
Current HELOC rates are relatively low compared to other loan options, including credit cards and personal loans.