When will mortgage interest rates go down?
Mortgage rates are likely to remain high in 2022 compared to 2021 and 2020, and it's difficult to say what 2023 will bring.
Even with rates as high as they are, they're still lower than the historical average. When mortgage interest rates increase, the price of homes tend to decrease because people seeking a mortgage may not be able to afford as large of a loan. This could drive home prices down and even eliminate some people from qualifying for a mortgage. This results in less competition for the homes that are on the market.
If you are looking to buy a home, Credit Union of Southern California (CU SoCal) has mortgage options for everyone! At CU SoCal, we make buying a home in California easy.
Call 866.287.6225 today to schedule a no-obligation consultation and learn about our auto loans, home equity lines of credit, personal loans, checking and savings accounts, and other banking products. As a full-service financial institution, we look forward to helping you with all of your banking needs.
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Why did mortgage rates go up?
Mortgage interest rates fluctuate based on economic factors, including inflation and the financial index that a mortgage interest rate is linked to (all interest rates are tied to a particular financial index).
The recent
mortgage rate increase is the result of inflation and the response by the Federal Reserve, which adjusts certain interest rates to slow inflation.
Mortgage interest rate forecast for 2022 and 2023
Although homebuyers are asking, “When will mortgage interest rates go down?” most economic analyses are predicting that mortgage interest rates are likely to remain high for the remainder of 2022.
Heading into 2023, Fannie Mae (a leading source of financing for mortgages in the United States) projects that mortgage interest rates will rise in 2023. Because there are many factors that affect interest rates, no one can predict with certainty which way interest rates will go.
How are mortgage interest rates set?
Numerous factors affect mortgage interest rates. Some of these are economic factors that are not controllable, including consumer activity, jobs, and even international economic activity.
Here are the factors that most affect mortgage interest rates:
The Federal Reserve. “The Fed” controls the supply of money in the marketplace and the cost of money and credit. The federal funds rate is the interest rate at which depository institutions lend reserve balances to other depository institutions overnight on an uncollateralized basis. The Federal Reserve sets this rate, which can affect the interest rate that banks charge their customers.
Bond prices. Bond prices and interest rates move in opposite directions. Economic factors can drive bond prices lower, which makes mortgage interest rates rise.
The Secured Overnight Financing Rate (SOFR). This financial index is the replacement to LIBOR index. SOFR is calculated differently from LIBOR and may result in lower borrowing costs.
The Constant Maturity Treasury (CMT) Rate. Lenders base adjustable-rate mortgage (ARM) rates on a variety of indexes. Among the most common indexes are the rates on one-year constant-maturity Treasury (CMT) securities, the Cost of Funds Index (COFI), and the London Interbank Offered Rate (LIBOR).
The health of the economy. Economic factors affect mortgage interest rates for some of the reasons already discussed. The healthier and more stable the economy is, the lower and more stable interest rates will be.
Inflation. To control inflation, the Fed will increase interest rates, as we have seen in recent months Although the Fed doesn’t set mortgage rates, the cost of borrowing money increases as a result.
Job growth. Steady job growth is often a sign that the Fed will increase interest rates to curb inflation.
Personal Factors
There are also personal factors that can affect a home loan's interest rate.
Credit score. A credit history and credit score are the primary factors lenders will look at and use to determine a borrower’s ability to repay a loan. Having good credit means lenders will offer you a better, lower interest rate on a mortgage. On the other hand, you may need to build or repair your
credit score to qualify for a home loan.
Down payment amount. Putting a down payment on a home means more than showing commitment to the purchase. Making a larger down payment usually results in a lower interest rate because a lower loan amount is needed, which means less risk to the lender.
Loan-to-value ratio (LTV). The LTV = the amount of the loan ÷ Appraised value of the property × 100. Typically, lenders will approve a mortgage with an LTV from 55% to 95%, depending on the type of mortgage program, the borrower’s credit score, and down payment amount. The higher the LTV, the more risk there is for the lender, and the higher the interest rate you’ll be offered.
Primary residence vs. second home vs. investment property. Lenders will generally offer a lower interest rate on a primary home loan. A second or vacation home mortgage will often have a higher interest rate. A borrower who must pay two monthly mortgage payments is at a higher risk of foreclosure.
How to get a lower mortgage interest rate
Here are some tips for getting a lower mortgage interest rate:
Check your credit score. The higher your credit score the better, lower rate you’ll get. Lenders typically look for a score above 650. Some lenders will accept lower scores based on the loan program and the borrower’s debt-to-income ratio.
Save for a down payment. Create a budget and use it as a guide to determine how much you can afford to save for a down payment each month. Learn more about
how to save money for a house.
Shop different lenders. Mortgages are available from many types of lenders, including credit unions, banks, and online lenders. However, it’s smart to start the process by speaking with the financial institution where you currently have an account. You may qualify for special interest rate promotions or fee discounts. Learn more about
choosing a mortgage lender.
Research different loan types. There are many different types of loans. As you start your research it’s helpful to speak with a mortgage professional about your unique financial situation and financial goals, which will often determine which type of loan is best.
Know when to lock in your rate. During the process of applying for a mortgage you will be offered a mortgage interest rate which you can “lock in” to ensure that the rate you are quoted is the rate you’ll get at the closing table. Most lenders provide rate locks that are good for 30-90 days. Learn more about
how long you can lock in a mortgage rate.
Why savvy consumers choose CU SoCal
For over 60 years CU SoCal has been providing financial services, including car loans, mortgages, Home Equity Loans, HELOCs, personal loans, credit cards, and other banking products, to those who live, work, worship, or attend school in Orange County, Los Angeles County, Riverside County, and San Bernardino County.
Please give us a call today at 866.287.6225 today to schedule a no-obligation loan consultation with a CU SoCal Member Services specialist.
Get Started on Your Mortgage Today!