Where Are Mortgage Rates Going?

October 14th, 2023

interest rates going up

Everyone is watching mortgage rates these days. And everyone knows they are much higher now than in 2020 and 2021! But are they high? Are they outrageous? And what exactly are they? How are they determined? Will they ever go back to when they were 3%?

Are mortgage rates high?

Looking at the historical numbers, today’s mortgage rates are above average. But today’s rates are not outrageous, as some think.

A while back, I published a chart of interest rates. It goes back about 40 years. I wanted to show the recent increase in interest rates is not a major event when put into historical context.

Then I found the 220-year chart below on an investing website called The Capital Spectator.

historical rate chart

Long-term interest rate history data like this puts today’s financial numbers into perspective. It seems to me the average interest rate level in our country is about 6.5%. This chart shows where rates are now is not an outrage. Interest rates were in the mid 6’s around 1789 when the US Constitution was ratified!

The chart shows that mortgage rates don’t routinely get as low as 3% or 4% over history. Even 5% is somewhat rare. Interest rates are volatile. And rates will be lower again at some point. And then they’ll be higher yet again. The cycle never ends.

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 number of variables. Some of those are:

  • Credit score: Obviously a higher credit score is better to get more competitive rates.
  • 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 whether a fixed rate, a buydown mortgage, or adjustable rate mortgage.
  • Down payment: Surprisingly a larger down payment does not 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.

A mortgage borrower will pay a much higher rate if they want to buy a condo, with 5% down, and a lower credit score. And a mortgage borrower will get lower terms on 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 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 refinance or get pre-approved.

Conclusion

Contact me to discuss mortgage rates, your local housing market, or other questions. Click here to schedule a call or you can email me directly.

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Brian Martucci is a loan officer for Capital Bank Home Loans, a division of Capital Bank, N.A. He has been in the mortgage industry since 1986 and has served in a number of roles, including loan processor, loan officer, mortgage broker, branch manager, and vice president. Brian Martucci – NMLS# 185421. His opinions do not necessarily reflect the opinions and beliefs of Capital Bank Home Loans or Capital Bank. Capital Bank, N.A.- NMLS# 401599. Click here for the Capital Bank, N.A. “Privacy Policy”.

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