The United States housing market is in the midst of an extreme supply shortage, and mortgage rates are still high for potential buyers. With federal interest rates continuing to play a cat-and-mouse game with inflation and consumer spending, mortgage rates remain high. As we've passed the midpoint of 2023, many people have been asking about mortgage rates for the rest of the year and beyond. With the possibility of rates going down in the second half, it's important to understand what to expect and how it might affect your finances. Whether you're looking to buy a new home or are already a homeowner, staying informed is essential. Will these trends continue into next year? This article examines current and future mortgage rate trends in the United States. We will also answer some of your most pressing questions about refinancing your mortgage.
Will Mortgage Rates Go Down in 2023?
The main question for every potential homebuyer and homeowner is, “Will mortgage rates go down in 2023?” The short answer is that there is a possibility that we could see mortgage rates drop by the end of 2023. However, some forecasters predict that mortgage rates could keep rising in 2023 and 2024. The current mortgage rates for a 30-year fixed mortgage, as of July 2023, are 6.96%, and many forecasters predict that we could see a slight drop in rates toward the end of 2023. This includes Fannie Mae, who forecasted a drop to 6.3% for the year’s fourth quarter.
As inflation begins to slow down and the Fed rate stays put for now, the housing market is also looking to slow down. However, the Economy Forecast Agency predicts that mortgage and Fed rates will continue increasing through the end of 2023. Their prediction forecasting model suggests that there will be an increase in the Fed rate from the current 5.25% to 5.5% come October of this year but drop back down to 5.25% in December. The model also suggests that mortgage rates for a 30-year fixed mortgage will gradually climb and peak in November at 7.75% before dropping to 7.71% in December. Although many experts and forecasting models predict a drop in mortgage rates, there are still certain factors that suggest a decrease is not imminent.
Will Mortgage Rates Go Down in 2024?
Despite some uncertainty on whether or not mortgage rates will go down in 2023, the same cannot be said about 2024. Many forecasts and experts agree that mortgage rates will definitely decrease in 2024. It’s just a matter of when. The Economy Forecast Agency predicts that 30-year mortgage rates in 2024 will fluctuate between 7.62% and 7.04% between January and July, with a peak of 8.08% in February. They predict that mortgage rates will drop significantly after July and end up at about 5.84% in December.
Other major forecasters predict a similar trend of rates dropping gradually through 2024. The National Association of Realtors and Fannie Mae expect rates to get as low as 5.6% by the end of 2024. Goldman Sachs is predicting a rate of 5.9% in 2024. Home prices are expected to rise slightly, even leveling out in some areas. This is excellent news for buyers who have been waiting for the market to cool for the past couple of years. The area of concern, however, is the major shortage of supply in the housing market. According to the U.S. New Housing Market Index, the pandemic stoppage of building set the market back years, and we may not see the end of the shortage until the end of the 2020s.
Is 2023 a Good Time To Refinance a Mortgage?
With the current state of mortgage rates in the United States and the amount of homeowners who took advantage of the record-low mortgage rates between 2020 and 2022, 2023 is not a good time to refinance your mortgage. Refinancing a mortgage right now is not in your best interest because of the rise in mortgage rates, the current uncertainty of whether or not they will decline, and the potential spike in the Fed rate. However, some options remain for those looking to refinance their mortgage. If you were one of the homeowners with a higher interest rate on your mortgage than the current one, refinancing could still be an option for you in 2023. Additionally, if you’re looking to secure a better rate because you have a better credit score than you did when you initially got your mortgage, refinancing could be a better option for you right now.
Will 2024 Be a Good Time To Refinance a Mortgage?
2024 will be a much better time for homeowners to refinance their mortgages. If the forecasts and experts are correct in their assumptions, there’s a good chance that we may see mortgage rates decline in 2024. This will provide the optimal opportunity for homeowners to refinance their mortgages and get a much better rate. While the decrease won’t be a drastic one, going from just over 7% in 2023 to between 5.6% and 5.9%, as the experts predict, would be an ideal opportunity for those looking to refinance to get a better rate before another potential rate hike. If the Fed rates decrease in 2024 and mortgage rates drop, there’s no reason why 2024 wouldn’t be a good time to refinance.
Factors That Affect Mortgage Rates
Several main factors can affect mortgage rates, along with other factors that can affect your individual mortgage rate. The following provides an overview of the main factors affecting mortgage rates.
Economic Factors
The economy is a strong indicator of how mortgage rates will act. If the economy is doing well, mortgage rates will typically be higher as buyers have more spending power and there’s a larger demand for homes. If the economy is doing poorly, mortgage rates will generally be lower. Other economic factors also play into it, such as inflation, employment rates, and consumer confidence. Mortgage rates will also climb if inflation is high since treasury yields are less valuable. This causes investors to want higher rates to compensate for the reduced buying power of the currency. Supply and demand play a large role in this factor as well. We’ve seen this in recent years with the pandemic causing supply to drop drastically while demand has increased, driving prices and mortgage rates to spike.
Central Bank Policies
Another factor that affects mortgage rates is the Federal Reserve, or simply the Fed, and its policies. The policies they enact and their interest rates are important in regard to mortgage rates because most of the big mortgagors and lenders get their money from the Fed in the form of bonds and other assets. By increasing their interest rates, they slow down borrowing rates and, in turn, raise mortgage rates.
Credit Score
For individual borrowers, the biggest factor when it comes to their mortgage rate is the quality of their credit score. It is often the most crucial factor in determining the rate they receive. Usually, the higher the credit score, the lower the mortgage rate they will receive. The opposite is true for individuals with lower credit scores. However, they will still be able to obtain a mortgage, but at a much higher rate. You may not qualify for a mortgage loan if your credit score is too low or your debt-to-income ratio is too high.
Mortgage Length and Type
Another deciding factor that has an impact on mortgage rates is the length of the loan that you are looking to get. Shorter-term loans like 15-year mortgages will have lower mortgage rates than the typical 30-year mortgage loan. However, a shorter mortgage term will generally mean a higher monthly payment for the borrower. There are also different types of mortgages that carry different rates, such as the adjustable-rate mortgage, which has rates that can change over time after an initial fixed period.
Loan-to-Value Ratio
Another key factor that affects your mortgage rate is the amount of money you are requesting on the mortgage loan. If you are putting more money down on the home, you will request a lower amount against the total value of the home, resulting in a much more favorable loan-to-value ratio and a much better mortgage rate.
How To Get a Lower Mortgage Refinance Interest Rate
When you decide to refinance your mortgage, you want to make sure that you’re getting the absolute best deal for your refinance. It’s important to understand the steps you must take in order to get the lowest rate possible. Let's examine some of the steps you'll need to take when refinancing your mortgage.
Shop for Rates
The key to finding lower interest rates is to do your research and shop around. Looking at multiple lenders is one of the best ways to get a lower interest rate on your refinance, and it could end up saving you money in the long run. According to Freddie Mac, even getting one additional rate quote can save borrowers an average of $1,500 over the life of a loan, and shopping up to five lenders can save about $3,000. Be wary of unusually low rates that are advertised, though, as you may have to pay upfront costs disguised as discount points to get the lower interest rate on the loan.
Check Your Credit
Keeping tabs on your credit should be a regular habit at this point, but make sure you’re looking for specifics and errors that could affect your refinance mortgage rate. Mistakes on your credit report can not only damage your score but can also prevent you from getting the best rate possible on your refinance. Make sure you check for any errors and try to resolve them before you start your refinance process.
Keep Your Credit Usage Low, But Don’t Stop Using It
Keeping your credit utilization low can help you earn a better interest rate on your refinance. Keeping it below 25% can be one of the best ways to get a better rate, but don’t stop using your credit cards because of that. Paying off your consumer debt is a great way to keep utilization low, but make small purchases on your cards from time to time. Paying off your balance each month can also help improve your credit score.
Assess Your Financial Situation
Before you start the refinance process to get a lower interest rate, it’s crucial to take the time to assess your financial situation. Spend time calculating your debt-to-income ratio and ensuring it meets your and the lenders' requirements. The lower your debt-to-income ratio, the better your financial stability is. This usually means that you can get lower interest rates on your mortgage refinance.
Lock In Your Rate
Lenders have the ability to accurately predict the behavior of mortgage rates in the short term, meaning your rate could change even during the time it is taking to process. If you’re refinancing your home, locking in your lowest rate with your loan officer could make a big difference. By having your officer do a mortgage rate lock, it will prevent rising rates from affecting your mortgage during the processing period.
Think About A Shorter-Term Loan
If you’re looking for a better refinance interest rate, consider shortening the terms of the loan. By moving from a 30-year mortgage to a short-term loan such as a 15-year mortgage, you’re not only going to get a lower interest rate, but it can also reduce your interest payments over the life of the loan without a significant change in your monthly payments.
How To Find a Mortgage Refinance Company
If you’re looking to refinance your mortgage, you are most likely looking for the best rate possible. With so many lenders out there and so many options, it can be hard to find the best rate and best deal for you. That’s why Expertise.com has a directory of the most qualified and highly rated mortgage refinance companies to help you locate and land the best deal for your mortgage refinance. Don’t just try to get the lowest rate advertised from the first lender you look at. This can cost you more money upfront. Get professional, expert advice from Expertise.com’s detailed directory of approved mortgage refinance companies and get the best mortgage refinance deal today.
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