What is a mortgage?
Most people don’t have the cash to simply buy a house. Instead, they use a mortgage, which is a loan to buy a home. After making a down payment of anywhere from 3% to 25%, they get a mortgage to cover the remaining costs of purchasing the home.
A mortgage is set up so you pay off the loan over a specified period called the term. The most popular term is 30 years. Each payment includes a combination of principal and interest, as well as property taxes, and, if needed, mortgage insurance. (Homeowners insurance may be included, or the homeowner may pay the insurer directly.) Principal is the original amount of money you borrowed while interest is what you’re being charged to borrow the money.
How do mortgage rates work?
The mortgage rate a lender offers you is determined by a mix of factors that are specific to you and larger forces that are beyond your control.
Lenders will have a base rate that takes the big stuff into account and gives them some profit. They adjust that base rate up or down for individual borrowers depending on perceived risk. If you seem like a safe bet to a lender, you’re more likely to be offered a lower interest rate.
Factors you can change:
- Your credit score. Mortgage lenders use credit scores to evaluate risk. Higher scores are seen as safer. In other words, the lender is more confident that you’ll successfully make your mortgage payments.
- Your down payment. Paying a larger percentage of the home’s price upfront reduces the amount you’re borrowing and makes you seem less risky to lenders. You can calculate your loan-to-value ratio to check this out. A LTV of 80% or more is considered high.
- Your loan type. The kind of loan you’re applying for can influence the mortgage rate you’re offered. For example, jumbo loans tend to have higher interest rates.
- How you’re using the home. Mortgages for primary residences — a place you’re actually going to live — generally get lower interest rates than home loans for vacation properties, second homes or investment properties.
Forces you can’t control:
- The U.S. economy. Sure, this means Wall Street, but non-market forces (for example, elections) can also influence mortgage rates. Changes in inflation and unemployment rates tend to put pressure on interest rates.
- The global economy. What’s happening around the world will influence U.S. markets. Global political worries can move mortgage rates lower. Good news may push rates higher.
- The Federal Reserve. The nation’s central bank attempts to guide the economy with the twin goals of encouraging job growth while keeping inflation under control. Decisions made by the Federal Open Market Committee to raise or cut short-term interest rates can sometimes cause lenders to raise or cut mortgage rates.
How (and why) to compare mortgage rates
Mortgage rates like the ones you see on this page are sample rates. In this case, they’re the averages of rates from multiple lenders, which are provided to NerdWallet by Zillow. They let you know about where mortgage rates stand today, but they might not reflect the rate you’ll be offered.
When you look at an individual lender’s website and see mortgage rates, those are also sample rates. To generate those rates, the lender will use a bunch of assumptions about their “sample” borrower, including credit score, location and down payment amount. Sample rates also sometimes include discount points, which are optional fees borrowers can pay to lower the interest rate. Including discount points will make a lender’s rates appear lower.
To see more personalized rates, you’ll need to provide some information about you and about the home you want to buy. For example, at the top of this page, you can enter your ZIP code to start comparing rates. On the next page, you can adjust your approximate credit score, the amount you’re looking to spend, your down payment amount and the loan term to see rate quotes that better reflect your individual situation.
Whether you’re looking at sample rates on lenders’ websites or comparing personalized rates here, you’ll notice that interest rates vary. This is one reason why it’s important to shop around when you’re looking for a mortgage lender. Fractions of a percentage might not seem like they’d make a big difference, but you aren’t just shaving a few bucks off your monthly mortgage payment, you’re also lowering the total amount of interest you’ll pay over the life of the loan.
It’s a good idea to apply for mortgage preapproval from at least three lenders. With a preapproval, the lenders verify some of the details of your finances, so both the rates offered and the amount you’re able to borrow will be real numbers. Each lender will provide you with a Loan Estimate. These standardized forms make it easy to compare interest rates as well as lender fees.
When you’re comparing rates, you’ll usually see two numbers — the interest rate and the APR. The APR, or annual percentage rate, is usually the higher of the two because it takes into account both the interest rate and the other costs associated with the loan (like those lender fees). Because of this, APR is usually considered a more accurate measure of the cost of borrowing.
Today’s Current Mortgage Rates
The average APR fell on a 30-year fixed mortgage today, slipping to 6.38% from 6.59%. Meanwhile, the average APR on the 15-year fixed mortgage sits at 5.68%. This same time last week, the 15-year fixed-rate mortgage APR was at 6.11%. Rates are quoted as APR.
The average APR on the 30-year fixed-rate jumbo mortgage is 6.35%. On a 5/1 ARM, the average APR fell to 7.45% from 7.46%. The average APR on a 5/1 ARM was 7.42% last week.
Mortgage Interest Rates Forecast For January 2023
Experts are forecasting that the 30-year, fixed-mortgage rate will stay within the 5% to 6% range in later 2023, though some predict it might get higher.
Experts expect the Federal Reserve’s ongoing monetary policies to continue to put some upward pressure on mortgage rates in the coming months. While mortgage rates are directly impacted by U.S. Treasury bond yields, rising inflation and the Fed’s actions to contain it by hiking the federal funds rate, tend to push mortgage rates upward.
Here are more detailed predictions from economists, as of January 2023:
- Compass U.S. region president, Neda Navab: There have been signals that mortgage interest rates may be at or near their peak, given recent encouraging news around inflation and a corresponding drop in the U.S. Treasury yields that help set mortgage rates. A sustained drop could push mortgage rates into the 5% range late in the second quarter or in the second half of 2023, but that’s definitely not guaranteed.
- Mortgage Bankers Association (MBA): “Long-term rates have already peaked. We expect that 30-year mortgage rates will end 2023 at 5.2%.”
- National Association of Realtors (NAR) senior economist and director of forecasting, Nadia Evangelou: “If inflation continues to slow down–and this is what we expect for 2023–mortgage rates may stabilize below 6% in 2023.” Many buyers want to believe that the 3% may come again, however, we don’t expect to see that.
- Freddie Mac: Forecasts the average 30-year mortgage rate to start at 6.6% in Q1 2023 and end up at 6.2% in Q4 2023.
What’s a Good Mortgage Rate?
Mortgage rates can change drastically and often—or stay the same for many weeks. The important thing for borrowers to know is the current average rate. You can check Forbes Advisor’s mortgage rate tables to get the latest information.
The lower the rate, the less you’ll pay on a mortgage. Depending on your financial situation, the rate you’re offered might be higher than what lenders advertise or what you see on rate tables.
If you’re hoping to get the most competitive rate your lender offers, talk to them about what you can do to improve your chances of getting a better rate. This might entail improving your credit score, paying down debt or waiting a little longer to strengthen your financial profile.
Best Mortgage Lenders
There are many ways to search for the best mortgage lenders, including through your own bank, a mortgage broker or shopping online. To help you with your search, here are some of the top mortgage lenders based on our list of this month’s best mortgage lenders.