Everybody is asking about current mortgage rates these days. And everyone knows they are higher! But are they high? And what exactly are they? How are they determined? Let’s take these questions one by one.
Are mortgage rates high?
Looking at the historical numbers, today’s rates are average. You might possibly consider today’s rates a little above average. I wrote this blog with charts that show historical rates. This is a good reference point. You will see that mortgage rates don’t routinely get as low as 3% or 4% over history. Even 5% is rare. If anyone is waiting for rates to go as low as they were in 2020 and 2021, they’ll likely be waiting a long time.
You can click here to watch this video for a short review of my take on historical rates.
What exactly are mortgage rates now?
Mortgage rates can’t be quoted in generic terms. If you want to get a quote that is anywhere near accurate, you need to discuss details with a mortgage lender.
Mortgage rates change due to a few variables. Some of those variables are:
- Credit score: Obviously a higher credit score is better to get more competitive rates.
- Down payment: Surprisingly a larger down payment does not necessarily guarantee better terms. A 5% down payment loan typically has mortgage insurance. That mortgage insurance may cover the lender up to 30% of the value of the home. Between 5% down payment and 30% PMI coverage that is 35% of safety for the lender. And that 35% of protection is more valuable than a 20% down payment. This means that a 5% down payment loan may have slightly better terms than 20% down. But there are scenarios where higher down payments may provide better terms. This is why you need to talk to a mortgage lender in detail.
- Loan Size: Mortgage rates will vary based on loan size. You need to talk to a mortgage lender to see if your loan amount is Conforming, Conforming “High Balance”, or Jumbo. Read more about loan size.
- Debt ratios: There are times when higher debt ratios may impact your mortgage terms.
- Property type: Certain property types can come with higher mortgage rates. Condominiums, 2-4 unit multi-family properties, and other property types can come with higher terms.
- Mortgage type: Rates will vary depending on if you are considering a fixed rate, a buydown mortgage, or adjustable rate mortgage.
A mortgage borrower will pay a much higher rate who wants to buy a condo with 5% down, who has a lower credit score, for a condo. And a mortgage borrower will get lower terms who wants to buy a single family home, with 20% down, and a high credit score.
How are rates determined?
The Federal Reserve determines mortgage rates, correct? No. The Federal Reserve is one lever of many that may have an impact. Mortgage rates are more affected by the free market. Keep an eye on inflation, economic news, and the general economy. This blog I wrote discusses the Federal Reserve and the economy in more detail.
It is also important to note that mortgage rates can change each business day. Rates move up and down daily, just as frequently as you see daily stock market moves.
What are current mortgage rates? As you can see that is a complicated question. You can fill out this form to see terms for your scenario. There is no fee required, no credit pull needed, and no obligation. After seeing numbers you can decide if it is time to get pre-approved.