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Mortgage rates rose last month, but they've dropped a bit in recent days as investors up their bets that the Federal Reserve will continue lowering the federal funds rate at future meetings.
In November, 30-year mortgage rates increased to 6.56%, up 32 basis points from the month before and substantially higher than their September low of 5.74%. Last week, rates averaged 6.32%.
Where rates go next depends on the economy. On Friday, November's jobs report was released, which showed that the U.S. economy added 227,000 jobs last month. This report was generally seen by investors as strong but not too strong, sending bond yields, and thus mortgage rates, a bit lower.
On Wednesday, we'll get an updated look at how inflation trended last month with the latest consumer price index data. As inflation continues to ease, mortgage rates are expected to go down next year. But there's still a risk that inflation could remain elevated above the Fed's target or tick back up, which could push mortgage rates higher.
Use our free mortgage calculator to see how today's mortgage rates will affect your monthly and long-term payments.
By plugging in different term lengths and interest rates, you'll see how your monthly payment could change.
Average 30-year mortgage rates are around 6.20%, according to Zillow data. This rate was 6.56% in November. Rates rose substantially last month, though they're a bit lower now.
The 30-year fixed-rate mortgage is the most popular home loan. With this type of mortgage, you'll pay back what you borrowed over 30 years, and your interest rate won't change for the life of the loan.
The lengthy 30-year term allows you to spread out your payments over a long period of time, meaning you can keep your monthly payments lower and more manageable. The trade-off is that you'll have a higher rate than you would with shorter terms, like a 15-year mortgage.
Average 15-year mortgage rates have been hovering around 5.60%, according to Zillow data. In November, 15-year rates averaged 5.92%.
If you want the predictability that comes with a fixed rate but are looking to spend less on interest over the life of your loan, a 15-year fixed-rate mortgage might be a good fit for you. Because these terms are shorter and have lower rates than 30-year fixed-rate mortgages, you could potentially save tens of thousands of dollars in interest. However, you'll have a higher monthly payment than you would with a longer term.
Rates on adjustable-rate mortgages have been comparable to fixed rates recently. Last month, the average mortgage rate for a 7/1 ARM was 6.82%, while the average rate for a 5/1 ARM was 6.83%, according to Zillow data.
When you get an ARM, you'll have a fixed mortgage rate for a certain period of time, after which your rate will adjust periodically. On a 7/1 ARM, for example, your rate will stay fixed for seven years, and then adjust once a year after that until you pay off the loan or refinance.
ARM rates are often (but not always) lower than their fixed-rate counterparts, making an ARM a good deal if you're looking to save on your monthly mortgage payment. But the risk with an ARM is that your monthly payment could increase if rates are up when your rate starts adjusting.
FHA interest rates were 5.41% last month, and they're a bit higher today.
FHA loans are insured by the Federal Housing Administration. This federal backing allows lenders to work with borrowers with lower credit scores and less money for a down payment, making these loans a good option for low-income and first-time homebuyers. They also typically have lower rates compared to conventional mortgages.
To get an FHA loan, you'll need a credit score of at least 580 and a down payment of 3.5%. If you can afford to put 10% down on a house, you could qualify for an FHA loan with a score down to 500, though not all lenders offer this option.
Current VA mortgage rates are in around 5.60%, according to Zillow data. Last month, VA rates averaged 5.97%.
VA loans are available to veterans and military members who meet minimum service requirements. They're backed by the Department of Veterans Affairs, and require no down payment or mortgage insurance.
Refinance rates have been slightly higher than purchase rates recently. Last month, 30-year refinance rates averaged 6.62%, while 15-year refinance rates were around 5.96%.
If you're wondering if you should refinance now, you'll need to crunch the numbers to see if it makes sense. Some experts advise only refinancing if you can reduce your rate by a percentage point or more, but it really comes down to whether it works for your individual circumstances.
If you can save enough each month by refinancing that you can recoup your costs in a reasonable amount of time, it might be worth it. You can calculate this by dividing your closing costs by the amount you're saving on your monthly mortgage payment. So, if you paid $3,000 to refinance and were able to lower your monthly payment by $200, it would take you 15 months to break even on your refinance.
Here's how 30-year and 15-year mortgage rates have trended over the last five years, according to Freddie Mac data.
Mortgage rates are determined by a variety of different factors, including larger economic trends, Federal Reserve policy, your state's current mortgage rates, the type of loan you're getting, and your personal financial profile.
While many of these factors are out of your control, you can work on improving your credit score, paying off debt, and saving for a larger down payment to ensure you get the best rate possible.
The Fed aggressively raised the federal funds rate in 2022 and 2023 to slow economic growth and get inflation under control. As a result, mortgage rates spiked.
Mortgage rates aren't directly impacted by changes to the federal funds rate, but they often trend up or down ahead of Fed moves. This is because mortgage rates change based on investor demand for mortgage-backed securities, and this demand is often impacted by how investors expect Fed hikes to affect the broader economy.
In September, the Fed started lowering its benchmark rate, and it cut rates again in November. Mortgage rates are still elevated, but over time they should ease as the Fed lowers rates.
Mortgage rates increased last month, but they're expected to drop next year as the Fed lowers its benchmark rate and inflation cools. However, that forecast could change depending on how the economy evolves in 2025. Right now, the Fed is poised to achieve a so-called "soft landing," where it successfully brings inflation back down to its 2% target without sparking an economic downturn. In this scenario, mortgage rates may only decrease moderately in 2025.
But if the economy cools too much and a recession looks likely, rates may fall more substantially. Or, if inflation stops decelerating or ticks back up, mortgage rates could rise.
