That’s the estimate from Fannie Mae. Here’s what that means for homebuyers.
- The rate on a 30-year fixed mortgage will fall to an average 4.5% in 2023, according to Fannie Mae.
- Rates have jumped more than two percentage points since the beginning of 2022, largely due to the Federal Reserve increasing borrowing costs.
- Consumers shouldn’t necessarily delay a home purchase if they find an affordable home they like now, experts said.
Mortgage rates are projected to decline next year — but that doesn’t mean prospective homebuyers should necessarily delay a purchase for the prospect of lower financing costs. The rate on a 30-year fixed mortgage will fall to an average 4.5% in 2023, according to a recent housing forecast published by Fannie Mae, a government-sponsored lender. This dynamic would offer relief to would-be homebuyers who’ve seen mortgage rates balloon this year.
How mortgage rates impact your wallet
Rates for a 30-year fixed mortgage — the interest rate of which doesn’t change over the loan’s term — have jumped more than two percentage points since the beginning of 2022.
Rates averaged 5.55% the week of June 23, according to data from Freddie Mac, another government-sponsored entity. That’s up significantly from 3.22% the first week of January though a slight decline from the 5.81% high point in June.
Here’s an example, according to HSH data: At a 3.5% fixed rate, a homebuyer with a $300,000 mortgage would pay about $1,347 a month and $185,000 in total interest over 30 years. At a 5.5% rate, homeowners would pay $1,703 a month and pay over $313,000 in interest for the same loan amount.
What prospective buyers should consider
Many consumers have turned to an adjustable-rate mortgage instead of fixed mortgages as borrowing costs have swelled. Adjustable-rate loans accounted for more than 12% of mortgage applications in both June and July this year — the largest share since 2007 according to Zillow data.
These loans are riskier than fixed rate mortgages. Consumers generally pay a fixed rate for five or seven years, after which it resets; consumers may then owe larger monthly payments depending on prevailing market conditions.
Kevin Mahoney, a certified financial planner based in Washington, D.C., favors fixed-rate loans due to the certainty they provide consumers. Homebuyers with a fixed mortgage can potentially refinance and lower their monthly payments when and if interest rates decline in the future.
Consumers who find a home they like — and can afford to buy it — are likely better served jumping on the opportunity now instead of delaying, says Keith Gumbinger, vice president of HSH, a market research firm. Even if borrowing costs improve next year, overall affordability will likely still be a challenge if home prices stay elevated.
-Courtesy of Greg Iacurci via CNBC.com – Aug 29 20222:48 PM EDT
