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Homebuyers have had trouble finding affordability as mortgage rates have risen to 20-year highs. But as markets settle in due to expectations of more hikes from the Federal Reserve, it’s possible that mortgage rates won’t rise much further this year.
Mortgage rates dropped this summer when investors interpreted comments from the Fed as a sign that the central bank could be gearing up for a pivot away from aggressive hikes to the federal funds rate. But as inflation has continued to run hot, Fed Chair Jerome Powell has made it clear that the central bank won’t stop raising rates until price growth slows to a more acceptable level. This helped rates trend back up.
In his press conference last week, Powell twice used the phrase “very premature” when talking about a potential pause in rate increases.
Until inflation starts to slow, mortgage rates are likely to remain elevated. But because the market has priced in expectations of future hikes from the Fed, they may have finally reached a peak.
Today’s mortgage rates
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Today’s refinance rates
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Use our free mortgage calculator to see how today’s mortgage rates will affect your monthly and long-term payments.
Your estimated monthly payment
- Paying a 25% higher down payment would save you $8,916.08 on interest charges
- Lowering the interest rate by 1% would save you $51,562.03
- Paying an additional $500 Each month would reduce the loan length by 146 months
By plugging in different term lengths and interest rates, you’ll see how your monthly payment could change.
Mortgage rate projection for 2023
Mortgage rates started ticking up from historic lows in the second half of 2021 and have increased over three percentage points so far in 2022. They’ll likely remain near their current levels for the remainder of 2022.
But many forecasts expect rates to begin to fall next year. In their latest forecast, Fannie Mae researchers predicted that rates are currently peaking, and that 30-year fixed rates will trend down 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 rates to fall even faster. It currently estimates that there’s a 50% likelihood that a mild recession will materialize in the next year.
Whether mortgage rates will drop in 2023 hinges on if the Federal Reserve can get inflation under control.
In the last 12 months, the Consumer Price Index rose by 8.2%. This is only a slight slowdown compared to the previous month’s numbers, which means the Fed will likely need to continue aggressively raising the federal funds rates to get prices to meaningfully come down.
As inflation slows, mortgage rates will likely start to fall as well. If the Fed acts too aggressively and engineers a recession, mortgage rates could fall further than what current forecasts expect. But rates probably won’t drop to the historic lows borrowers enjoyed throughout the past couple of years.
Should I get a HELOC? Pros and cons
If you’re looking to tap into your home’s equity, a HELOC might be the best way to do so right now. Unlike a cash-out refinance, you won’t have to get a whole new mortgage with a new interest rate, and you’ll likely get a better rate than you would with a home equity loan.
But HELOCs don’t always make sense. It’s important to consider the pros and cons.
- Only pay interest on what you borrow
- Typically have lower rates than alternatives, including home equity loans, personal loans, and credit cards
- If you have a lot of equity, you could potentially borrow more than you could get with a personal loan
- Rates are variable, meaning your monthly payments could go up
- Taking equity out of your home can be risky if property values decline or you default on the loan
- Minimum withdrawal amount may be more than you want to borrow
When will house prices come down?
Home prices are starting to decline, but we likely won’t see huge drops, even if there’s a recession.
The S&P Case-Shiller Home Price Index shows that prices are still up year-over-year, though they fell on a monthly basis in July. Fannie Mae researchers expect prices to decline 1.5% in 2023, while the MBA expects a 2.8% increase in 2023 and a 2.1% increase in 2024.
Sky high mortgage rates have pushed many hopeful buyers out of the market, slowing homebuying demand and putting downward pressure on home prices. But rates may start to drop next year, which would remove some of that pressure. The current supply of homes is also historically low, which will likely keep prices from dropping too far.
What happens to house prices in a recession?
House prices usually drop during a recession, but not always. When it does happen, it’s generally because fewer people can afford to purchase homes, and the 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 could be, and think about how that fits in with your overall budget.
Typically, experts recommend spending no more than 28% of your gross monthly income on housing expenses. This means your entire monthly mortgage payment, including taxes and insurance, shouldn’t exceed 28% of your pre-tax monthly income.
The lower your rate, the more you’ll be able to borrow, so shop around and get preapproved with multiple mortgage lenders to see who can offer you the best rate. But remember not to borrow more than what your budget can comfortably handle.