Yes, mortgage rates are finally drifting downward. The past few years have given us rising interest rates, which in the fall of 2022 — and again in the fall of 2023 — exceeded 7% for the first time in more than 20 years. Since then, however, we’ve seen rates drop and, in December 2023, finally go below 7%.
While these rates aren’t exceptionally high from a historical perspective, they can be challenging to deal with — especially when combined with a housing market beset by inventory shortages, high home prices and reduced affordability.
A 30-year fixed-rate mortgage is a home loan repaid over 30 years. The 30-year period is known as your “loan term.” A 30-year term typically gives you the lowest monthly payment compared to other, shorter-term options.Mortgage interest rates on 30-year mortgages are usually higher than shorter-term mortgages, like 15-year fixed-rate loans. You’ll also pay more interest over a 30-year term than with a shorter term. Check out an amortization schedule to compare the differences in monthly payments and total interest paid for a 15-year versus a 30-year mortgage.
For those seeking the lowest possible entry point, adjustable-rate mortgages (ARMs) hold great appeal, since they tend to offer the lowest interest rates and monthly payments during their introductory periods. Buyers have shown a growing interest in ARMs over the past few years — plus, offers for ARMs more than tripled on the LendingTree platform between the first half of 2021 and the first half of 2022. Today, ARMs make up about 5.4% of all mortgage applications, according to the Mortgage Bankers Association’s (MBA) survey from the week of January 5, 2024.
Mortgage rates have come down since their recent peak of 7.79% in October 2023, dropping consistently for nine weeks straight and finally dipping under 7%. This is good news for potential homebuyers looking to purchase in what has been the least affordable housing market since the 1980s. Our experts predict that, barring an unexpected increase in inflation, the Federal Reserve could make several rate cuts in 2024. In response, mortgage rates should continue to move downward.
30-year fixed-rate refinance trendsRefinance rates are usually slightly more expensive than purchase rates, but the two tend to fluctuate roughly in tandem. In today’s rates environment, you can expect about a 26-basis-point difference between what you’ll pay to refinance versus purchase. (That said, on a $400,000 loan that’s likely only going to affect your monthly payment by about $69, so it shouldn’t be a huge concern.)
Depending on the news or events of the day, mortgage rates may change daily and can even spike or drop hourly. If you see rates that work with your finances, get a rate lock so you don’t lose access to that interest rate in the time it takes you to find your dream home and close on your loan.
Mortgage lenders typically take into account the following factors when offering you a mortgage rate:
→ Credit score
→ Down payment amount
→ Loan type
→ Intended use of the home (e.g., primary vs. investment property)
→ Closing costs
How 30-year mortgage rates are determined on LendingTreeMortgage quotes displayed on LendingTree are based on historical mortgage rate data from offers made to users through the LendingTree platform.
Looking for top mortgage lenders? Check out our list of the best mortgage lenders of 2024.A 30-year term is the longest fixed-rate loan term typically available. Still, there are tradeoffs with choosing a 30-year loan term over a fixed-rate loan with a shorter term.
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As 30-year fixed rates increase, ARM loans grow more popular because they often offer a lower initial rate that’s fixed for three, five or seven years. Many lenders offer adjustable-rate mortgages (ARMs) with lower monthly payments for a set number of years, which can help borrowers save money. However, once the “teaser” initial rate period expires, your monthly payment could go up based on the terms of the program you chose.
Highlights of ARM loans include:
Let’s say you want to compare potential monthly payments on a 30-year fixed-rate mortgage versus a 5/1 ARM that’s used to buy a $350,000 home with a $50,000 down payment.
| 30-year fixed | 5/1 ARM | |
|---|---|---|
| Interest rate | 6.875% | 5.98% |
| Monthly payment (principal and interest) | $1,970.79 | $1,794.80 |
→ As you can see in the table, a 5/1 ARM you could lower your monthly payments by $176 for the first five years.
For most people, an ARM only makes sense if you have short-term savings needs and plan to sell or refinance your home before the adjustable-rate period kicks in.
If you’d like to do further calculations comparing loans with different rates, use the calculator below:
You should refinance a 30-year mortgage if you’ll recoup your closing costs before you sell your home. This is called your break-even point, and it’s calculated by dividing your closing costs by your monthly savings. However, there are some other reasons you should consider refinancing a 30-year mortgage:
The interest charged on credit card debt is usually far higher than the interest you’ll have to pay on a 30-year mortgage. Paying off revolving debt with a refinance also has an added bonus: Your credit score may bump up.
If you made a small down payment to buy your home but values have been skyrocketing in your area, a refinance could help you get a lower rate and drop your monthly private mortgage insurance (PMI) payments.
If you recently took out a mortgage with a 3.5% down payment backed by the Federal Housing Administration (FHA), refinancing to a conventional mortgage is the only way you’ll get rid of FHA mortgage insurance.
If you’ve received a notice that your ARM rate is about to go up, a refinance to a 30-year fixed-rate loan will give you a stable monthly payment.
Spread out the cost of a kitchen remodel or other high-cost home improvement project with a 30-year fixed-rate cash-out refinance. You can also choose a 30-year term on a renovation loan to finance your fixer-upper costs based on the estimated value of your home after the improvements are complete (a cash-out refinance is based on your home value before improvements).
Lenders look at your debt-to-income (DTI) ratio, which compares your gross monthly income to your debts, to determine how much you can afford. Lenders usually consider a DTI ratio under 35% to be “good,” but you may qualify for a loan even with a higher DTI. Most loan programs allow for a maximum DTI ratio between 41% and 45%.
Once you’ve received a loan estimate that fits your needs, you should ask for a rate lock. Provide the requested loan paperwork quickly, so your loan closes before the rate expires and you avoid costly extension fees.
A lender credit is a cash credit your lender may offer to cover some or all of your closing costs if you’re willing to pay a higher interest rate. Although you’ll save money at closing, you’ll spend more on interest charges over the life of your loan. If closing costs are the only thing standing between you and homeownership, however, lender credits may be worth considering
