Rates moderate after midweek spike

• The average for a 30-year fixed rate mortgage was 7.44% as of September 22. That’s up 0.05 points from the previous week.
• 10-year Treasury yields spiked mid-week, causing mortgage rates to jump to multidecade highs.
• The median monthly mortgage payment in the U.S. hit a new record for the third week in a row. 

The average for a 30-year fixed-rate mortgage soared to an eye-watering 7.65% last week — the highest since November 2000 — before settling at 7.44%, according to Mortgage News Daily. 

The spike followed the Federal Reserve’s decision on September 20 to hold the benchmark borrowing rate at 5.25%-5.50%. Despite the pause, the Fed said that it expects one more rate this year and then plans to hold rates “higher for longer,” revising its earlier projection of four rate cuts in 2024 down to two. The Fed’s goal is to bring inflation down to 2%.

That means borrowing — including mortgages — will remain pricier well into the new year, which will continue to stymie the housing market. 

“The 30-year fixed-rate mortgage has hit the highest level since the year 2000,” said Freddie Mac’s Chief Economist Sam Khater in a statement. “However, unlike the turn of the millennium, house prices today are rising alongside mortgage rates, primarily due to low inventory. These headwinds are causing both buyers and sellers to hold out for better circumstances.”

Inflation was up 3.7% in August over 2022, which is still well above the Fed’s target. Jobless claims rose by just 2,000 over the week before, coming in at 204,000 — a sign that the economy is still robust. 

Some relief could be on the way for homebuyers, however. Most projections see mortgage rates falling into the 6% range by year’s end. The Mortgage Bankers Association and the National Association of Realtors expect the average for a 30-year fixed-rate mortgage to drop to 6.3% by the end of the year, while the National Association of Homebuilders predicts they’ll decline to 6.8%. Fannie Mae, however, expects them to dip only slightly to 7.1%.

For now, the average for a 15-year fixed-rate mortgage stands at 6.75%, according to Mortgage News Daily. The average for a jumbo mortgage is 7.55%, while the average for a 5/1 ARM is 7.05%. 

This time last year, mortgage rates were around 6.8% as they crept toward 20-year highs in October and November. And they’re more than double what they were during the peak of the pandemic homebuying frenzy. 

Mortgage rates closely track the 10-year Treasury yield, which goes up with the federal funds rate. Other government actions affect the 10-year Treasury yield, too: It surged to its highest level since 2007 last Wednesday over fears of a government shutdown. And when the 10-year Treasury spikes, so do mortgage rates — and prospective homebuyers flee the housing market.

“The purchase market, which is still facing limited for-sale inventory and eroded purchasing power, saw [mortgage] applications down over the week and 27 percent behind last year’s pace,” said Joel Kan, chief economist with the Mortgage Bankers Association. “Refinance activity was down over 20 percent from last year and accounted for approximately one third of applications. Many homeowners have little incentive to refinance.”

The median monthly mortgage payment reached a new record high during the four weeks ending September 17, according to Redfin, breaking the record set just one week earlier: The average borrower must now shell out $2,666 a month to pay for their home.

Active listings were down 15.3% year-over-year, while new listings were down 6.1% — that’s the smallest drop in more than a year, but Redfin notes that’s partially because prices plummeted this time last year. There’s about 3.2 months worth of inventory available, which Redfin says translates to a seller’s market. 

If you find yourself needing to buy now, however, real estate pros have an adage for you: “marry the house, date the rate.” Translation: If you see your dream home now, you don’t necessarily have to walk away just because mortgage rates are high. You can always refinance once rates drop. 

Just a three-quarter point decline is enough to make refinancing worth it (which means this week’s 0.31 decline puts some recent mortgages almost half-way there). And, as you look for the best possible rate right now, make sure you compare offers among multiple lenders. Just getting quotes from four lenders can save you up to $1,200 every year on your mortgage, according to a study by Freddie Mac. 

On average, the interest rate for a 30-year mortgage on September 29 was 7.44%, up from 7.39% on September 22. 

On average, the interest rate for a 15-year mortgage on September 29 was 6.75%, up from 6.71% on September 22. 

On average, the interest rate for a 30-year fixed rate jumbo mortgage on September 29 was 7.55%, up from 7.42% on September 22. 

On average, the interest rate for a 5/1 ARM on September 29 was 7.05%, down from 7.13% on September 22.

Mortgage rates are influenced by a variety of factors, including:

• Your credit score
• Down payment
• Your debt-to-income ratio (DTI)
• The type of loan you’re getting
• Loan term
• Interest rate type (fixed vs. adjustable)
• Inflation and the overall economy
• The Federal Reserve (which doesn’t set mortgage rates, but it certainly influences them)

If you need to move now, even as rates reach multi-decade highs, real estate pros have an adage for you: “marry the house, date the rate.” Translation: If you see your dream home now, you don’t necessarily have to walk away just because mortgage rates are high. You can always refinance once rates drop. 

Just a three-quarter point decline is enough to make refinancing worth it. And, as you look for the best possible rate right now, make sure you compare offers among multiple lenders. Just getting quotes from four lenders can save you up to $1,200 every year on your mortgage, according to a study by Freddie Mac. 

Refinancing is not the only strategy for navigating high rates, however. Here are a few tips for getting a better rate on your mortgage.

• Shop around: You can save as much as $1,200 a year on your mortgage payments just by comparing quotes from at least four lenders, according to Freddie Mac. Most mortgage lenders let you answer a few questions online to start the process, making it easy to learn about your options.
• Consider different types of loans: Fifteen-year fixed-rate mortgages, adjustable rate mortgages, and government-backed mortgages all have different rates. The average for a 15-year fixed-rate mortgage was 6.81% on September 26, almost 0.70 percentage points lower than the rate for a 30-year fixed-rate mortgage. If you go that route, just be ready for larger monthly payments, since you’ll be chipping away at the loan over half as many years.
• Pay for discount points: Mortgage points generally cost about 1% of the total loan amount but can trim your mortgage rate anywhere from ⅛ to ½ a percentage point. If the seller is eager to unload their home, you might even be able to get them to pay for the points.
• Make a bigger down payment: If you can swing it, the more you pay now, the less you’ll pay over the life of the loan, since you’ll have a lower principal. What’s more, mortgage lenders may reward you with a lower rate, since they’re taking on less.

Editorial Disclosure: All articles are prepared by editorial staff and contributors. Opinions expressed therein are solely those of the editorial team and have not been reviewed or approved by any advertiser. The information, including rates and fees, presented in this article is accurate as of the date of the publish. Check the lender’s website for the most current information.

This article was originally published on SFGate.com and reviewed by Lauren Williamson, who serves as the Home and Financial Services Editor for the Hearst E-Commerce team. Email her at [email protected].