April 26, 20247-minute read
Author: Kevin Graham
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Last updated: January 2, 2024 We’re currently coming off a cycle of mortgage rates rising, though the market has recently started to swing the other way. Mortgage rates over time behave quite a bit like a swinging pendulum. Whether you’re a current homeowner or potential home buyer, it’s important to understand how mortgage rates work so you can take advantage of timing for your home loan.
What Causes Mortgage Rates To Increase?
There are a number of factors that can cause mortgage rates to rise. Several of them are actually interrelated. Broadly speaking, there are two categories of items that impact the mortgage rate anyone gets. More specifically, there are market factors and personal financial profile factors. Market factors are all about the interplay between the housing market, economic growth, the Federal Reserve and inflation. So everything mentioned in the section above has a major impact on daily movements in mortgage rates.How Are Interest Rates Determined?
However, the second factor that you have much more control over is your personal financial profile. There are three big things any lender looks at when determining your personal interest rate: your down payment or equity, your credit score and how you plan to occupy the property.
Generally speaking, the higher your down payment (or amount of existing equity left in the home after a refinance), the better your rate is going to be. If your lender doesn’t have to give you as much money to fund the transaction, it’s less risky.
If you have a higher credit score, this means your borrowing history has shown you to be a financially responsible applicant who should be able to get a more favorable rate than someone with a credit score that’s noticeably lower.
It also matters how the home will be used. You’ll usually get the lowest rates on a primary home because if you get into trouble financially, lenders anticipate you’ll prioritize the payment on the home you live in. For this reason, you can expect a slightly higher rate on second homes and investment properties.
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2023 Mortgage Rate Recap
In general, mortgage rates maintained a steady ascent throughout 2023. Only recently have mortgage rates fallen as a result of indications that the Federal Reserve will likely look to lower the federal funds rate at some point in 2024. The following interest rates come from 2023 – the first week of January, the third week of June and the end of the year according to the Freddie Mac Primary Mortgage Market Survey®.
Timeframe | Average Mortgage Rate |
Early 2023 | 6.48% |
Mid-2023 | 6.67% |
Late 2023 | 6.61% |
Mortgage Rate Forecast For 2024
Trying to predict mortgage rates is a bit like guessing whether a dog will go for a beef or peanut butter treat first. Your guess is as good as anyone else’s. While the market could go any which way, some prominent industry players have made predictions. While they all continually update, some forecasters, like Freddie Mac and National Association of Home Builders, don’t break their predictions out by parts of the year.
Housing Authority | Early 2024 | Mid-2024 | Late 2024 |
Freddie Mac | 6% – 7% | 6% – 7% | 6% – 7% |
Fannie Mae | 7% | 6.8% | 6.5% |
Mortgage Bankers Association | 7% | 6.6% | 6.1% |
National Association of Home Builders | 6.77% | 6.77% | 6.77% |
Of course, mortgage rates are just one of many 2024 housing market predictions. Inventory and prices also matter quite a bit to the budget of the average home buyer.
Tips For Getting A Good Mortgage Rate During This Time
Despite the current activity in the economy and ever-present uncertainty around rates, life continues to chug along, and you should too. If you’re in the process ofbuying a home, consider the following tips to make the most of your money: It’s always important to shop in a timely fashion to find the best loan for your specific situation. As you’re choosing a mortgage lender, remember to consider rates and loan terms alongside factors that may not appear on paper, such as the reputation of the lender and the quality of client service you’re going to receive. After all, you’ll likely be making payments on your home for a long time, so it’s imperative to work with a lender you can trust. Be sure to compare apples to apples regarding the type of loan as well as the cost (possible mortgage discount points) for the rate you’ll obtain. Once you find a lender, you should also take the time to getpreapproved, which determines how much money you can borrow to buy a home. Having a preapproval will help you better understand how much home you can afford while also indicating to sellers that you’re a serious buyer with secured financing. Many lenders, including Rocket Mortgage®, offer amortgage rate lock, which allows homeowners to secure a set interest rate during loan processing. This means that regardless of what’s happening in the economy, your interest rate will stay the same for a set period, typically about 45 days. But keep in mind that you’ll only reap the benefits of a mortgage rate lock if you’re able to close on your loan during the lock period – otherwise, your locked rate may expire. If you get a mortgage while interest rates are higher than you’d prefer, it may be comforting to remember that you can always refinance your loan for better rates if you qualify when they go back down. And if waiting on mortgage refinancingwhile buying now means securing your dream home, it’s probably worth it to pay a bit more in interest in the meantime. Wonderingwhen to refinance? There’s no definitive perfect time, so keep an eye on the market and take advantage of the opportunity when you see a promising rate.Shop Around For A Lender
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FAQs About Mortgage Rates Rising
Now that we’ve gone over the basics of getting a mortgage while rates are rising, let’s answer a few of your frequent questions. As of January 2, 2024, mortgage rates seem to have switched back to a downward cycle. 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. No matter the direction, it’s hard to definitively say where mortgage rates are going. What we can say is that the Federal Reserve has made some indications that they might look to lower the federal funds rate in 2024. If that were to happen, that’s the kind of event that could lead to lower mortgage rates. It never hurts to shop around. Mortgage lenders have to remain competitive in their pricing. The question of how to get the best mortgage rate also comes down to personal financial factors like your credit score and the size of your down payment. Unlike the market itself, this is an aspect of rates that is completely within your control. The most recent data from Freddie Mac for the week of December 28, 2023, shows that the average rate on 30-year fixed-rate mortgages is 6.61%. However, there can be wide variability in rates depending on your loan term, the size of your down payment, whether you’ll live in the home and whether your rate is fixed or variable. People try to time the market when locking in a mortgage rate. That’s incredibly hard to do. The best way to answer this question is probably to say that you should lock your rate as soon as you can if you see one that’s low compared to recent trends, enabling you to have a payment you’re truly comfortable with. You can also rely on one of our Home Loan Experts for guidance.Why are mortgage rates going up?
Will mortgage rates drop in 2024?
How do I find the best mortgage rate?
What is the current mortgage rate?
When should I lock in my mortgage rate?
The Bottom Line
Buying a house is a long-term investment, but don’t get so hung up on the financials that you forget the most important piece: finding a house you can call home. If you find your dream house, don’t let rising rates stop you from turning your dream into a reality. Remember: Current interest rates are considered normal from a historical perspective, and you can always choose to refinance for a lower rate later on. If you feel ready to move forward, you can take the next step and start your mortgage application.
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