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Mortgage rates trended up quite a bit this week, providing some wiggle room for buyers struggling with affordability.
After rising more than three percentage points this year, interest rates may have finally peaked, which is good news for homebuyers hoping to enter the market in 2023. Lower interest rates increase homebuyers’ purchasing power, which means they can be approved for larger mortgages.
However, lowering mortgage rates is a double-edged sword, as low interest rates typically create more competition among buyers, pushing home prices up.
“Even as days on the market lengthen, overall housing inventory still remains near historic lows,” Lawrence Yun, chief economist for the National Association of Realtors, said in a recent blog post reacting to the latest home start data, which showed that housing starts fell in October. “New listings are actually down compared to the same period a year ago. That means once the floodgates open a bit for homebuyers, we could be facing a housing shortage again.”
Today’s mortgage rates
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Today’s refinancing rates
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Use our free mortgage calculator to see how today’s interest rates will affect your monthly payments:
Your estimated monthly payment
- By paying a 25% a bigger down payment would save you $8,916.08 on interest
- Interest rate reduction by 1% he would save you $51,562.03
- Paying extra $500 each month would reduce the duration of the loan by 146 months
By clicking “More details,” you’ll also see how much you’ll pay over the life of your mortgage, including how much goes toward principal versus interest.
Are HELOCs a good idea right now?
Many homeowners gained a lot of equity over the past two years as home prices rose at an unprecedented rate. But with interest rates so high now, tapping into that equity can be expensive.
For homeowners looking to tap into their home’s value to cover a major purchase — such as a home renovation — a home equity line of credit (HELOC) may still be a good option.
A HELOC is a line of credit that allows you to borrow against the equity in your home. It works similar to a credit card in that you borrow as much as you need instead of receiving the entire amount you borrow in one go.
Depending on your finances and the type of HELOC you get, you may be able to get a better interest rate with a HELOC than with a home equity loan or cash-out refinance. Just keep in mind that HELOC rates are variable, so if rates start to rise further, yours likely will too.
Mortgage rate forecast for 2023
Mortgage rates began to climb from historic lows in the second half of 2021 and have risen more than three percentage points so far in 2022. They are likely to remain near their current levels for the remainder of 2022.
However, many forecasts expect interest rates to start falling next year. In their latest forecast, Fannie Mae researchers predicted that interest rates are currently peaking and that 30-year fixed rates will fall to 6.2% by the end of 2023.
The Mortgage Bankers Association also noted that a recession in the first half of 2023 could cause interest rates to fall even faster. Currently, he estimates there is a 50% chance of a mild recession next year.
Whether mortgage rates fall in 2023 depends on whether the Federal Reserve can control inflation.
Over the past 12 months, the Consumer Price Index rose by 7.7%. That’s only a slight slowdown from last month’s numbers, meaning the Fed will likely need to continue aggressively raising federal funds rates to bring prices down substantially.
As inflation slows, mortgage rates will likely begin to fall as well. If the Fed acts too aggressively and creates a recession, mortgage rates could fall more than current forecasts expect. But interest rates likely won’t fall to the historic lows enjoyed by borrowers over the past two years.
When will house prices fall?
Home prices are starting to decline, but we probably won’t see huge declines, even if there is a recession.
The S&P Case-Shiller Home Price Index shows prices are still up year-over-year, although they fell on a monthly basis in July and August. Fannie Mae researchers expect prices to fall 1.5% in 2023, while MBA expects a 2.8% increase in 2023 and a 2.1% increase in 2024.
High mortgage rates have pushed many hopeful buyers out of the market, slowing home buying demand and putting downward pressure on home prices. But interest rates may start to fall next year, which will take some of that pressure off. The current housing supply is also historically low, which will likely prevent prices from falling too far.
What happens to house prices in a recession?
Home prices usually fall during a recession, but not always. When it does, it’s generally because fewer people can afford to buy homes and low demand forces sellers to lower their prices.
How much mortgage can I afford?
A mortgage calculator can help you determine how much you can afford to borrow. Play around with different home prices and down payment amounts to see how much your monthly payment might be and think about how it fits into your overall budget.
Typically, experts recommend spending no more than 28% of your gross monthly income on housing costs. This means that your entire monthly mortgage payment, including taxes and insurance, cannot exceed 28% of your monthly income before taxes.
The lower your interest rate, the more you can borrow, so shop around and get pre-approved with several mortgage lenders to see who can offer you the best rate. But remember not to borrow more than your budget can comfortably handle.