Mortgage Rates Rise as Inflation Grows | May 2024 Rates Forecast
If you're financing a home with a mortgage, ensuring you get the best possible rate is one of the smartest financial moves you can make. While it takes some legwork, the payoff is hard to argue with. Shaving even a fraction of a point from your rate can save you hundreds of dollars each month and tens of thousands over the life of the loan. With a $400,000 mortgage, dropping from a 7% to a 6.5% rate would save you almost $50,000 in interest over a 30-year term — roughly enough to pay for a year of private college.
Current Mortgage Rates: How High Are Average Rates Right Now?
For weeks, average mortgage rates held steady in the high-6% range, according to Freddie Mac. As of the close of March, the average 30-year mortgage rate was 6.79%. Applications for mortgages to purchase a new home are now down 16% compared to last year, according to the Mortgage Bankers Association. Refinances have dropped 9%.
| Week Ending | Avg. 30-Year Fixed | Avg. 15-Year Fixed |
|---|---|---|
| March 28, 2024 | 6.79% | 6.11% |
| March 21, 2024 | 6.87% | 6.21% |
| March 13, 2024 | 6.74% | 6.16% |
| March 7, 2024 | 6.88% | 6.22% |
| February 29, 2024 | 6.94% | 6.26% |
| Source: Freddie Mac | ||
"There has been a little more volatility since February, with rates moving up a bit — but they're still below their highs from 2023."
— Rick Mount, Managing Partner, Churchill Mortgage (Southwest Region)
Where Are Mortgage Rates Headed?
| Benchmark | Rate | Date |
|---|---|---|
| Current rate | 6.79% | March 28, 2024 |
| This time last year | 6.32% | March 30, 2023 |
| Highest point in last decade | 7.79% | Oct. 26, 2023 |
| All-time high | 18.53% | Oct. 16, 1981 |
| All-time low | 2.65% | Jan. 7, 2021 |
| Source: Freddie Mac | ||
Mortgage rates have remained high thanks to stubborn inflation. Going into 2024, the Fed indicated lower rates may be on the horizon, but with inflation still sitting above the Federal Reserve's 2% goal, those have yet to come to fruition. The Fed has kept interest rates elevated at its last several meetings in an effort to bring inflation and consumer spending closer to its goal.
"Inflation has continued to trend higher. As long as inflation stays high or rises, the Fed will be hesitant to cut rates."
— Ralph DiBugnara, Mortgage Broker & Senior Vice President, Cardinal Financial"I believe the reality is we may see two to three cuts this year, all depending on inflation readings. The Fed is committed to a 2% inflation rate, and I don't expect we see meaningful cuts until that number is a reality."
— Rick Mount, Managing Partner, Churchill Mortgage (Southwest Region)
According to the CME Group FedWatch Tool, the Fed will likely hold steady on rates in May, with higher chances of rate cuts by the end of summer. MBA currently projects mortgage rates will drop to 6.3% by the end of Q3 and 6.1% by year's end. Fannie Mae predicts a 6.6% and 6.4% average, respectively.
How Are Mortgage Rates Set?
External Factors
The overall state of the economy is a big contributor to the path of mortgage rates. When the economy is strong, rates tend to be higher. When the economy sputters, rates drop.
"Interest rates often will rise or fall based on the strength of the economy, and ironically, bad news can be good news for lower interest rates."
— Bill Banfield, Executive, Rocket Mortgage
"When there is high demand for mortgage-backed securities, the prices of those MBS increase, which in turn can lower mortgage interest rates. This is because investors are willing to accept lower returns on their investments when the prices of MBS are high."
— Tanya Blanchard, Founder, Madison Chase Capital Advisors
Personal Factors
Your personal finances will factor into your interest rate as well. First, there's your credit score — lenders use this to gauge your risk as a borrower. The lower your score, the higher the rate you'll need to pay. The size of your down payment matters too: a larger down payment means more skin in the game, which lowers your rate.
"Credit score is a very important consideration when applying for a mortgage. If someone has a proven track record of being responsible with their finances, they'll be more likely to get a mortgage and a better rate."
— Bill Banfield, Executive, Rocket Mortgage
Loan-Specific Factors
The type of mortgage loan you choose will also influence your rate. Government-backed loans (FHA, VA) tend to have lower rates than conventional or jumbo loans. Shorter-term loans (15 years) also have lower rates than longer-term ones (30 years) — though they come with higher monthly payments.
How, When, and Why to Compare Mortgage Rates
Because every lender has different overhead costs, operating capacities, and appetite for risk, mortgage rates can vary significantly from one company to the next. Freddie Mac recommends getting at least four quotes — it could save you an average of $1,200 a year. Don't rely on advertised rates alone; apply for preapproval to get a true picture of what you'd pay. Be sure to look at the APR — the annual percentage rate — which reflects the total annual cost of the loan, including both your rate and any fees.
"Looking at advertised rates alone is not a good way to shop around. Lenders typically display the lowest rates they offer as a headline to attract leads, but the actual rate you may be offered can vary dramatically depending on your own financial situation and the kind of loan you're looking for."
— Mortgage Expert
How to Calculate Your Mortgage Costs
Even a small change in rate can have a big impact on your monthly payment and long-term interest costs. See the difference that incremental rate changes can make on the cost of a 30-year, $400,000 home loan:
| Rate | Monthly Payment | Interest Over 30 Years |
|---|---|---|
| 5.00% | $2,147 | $373,023 |
| 5.25% | $2,208 | $395,173 |
| 5.50% | $2,271 | $417,616 |
| 5.75% | $2,334 | $440,344 |
| 6.00% | $2,398 | $463,352 |
| 6.25% | $2,462 | $486,632 |
| 6.50% | $2,528 | $510,177 |
| 6.75% | $2,594 | $533,981 |
| 7.00% | $2,661 | $558,035 |
| Based on a $400,000 30-year fixed-rate mortgage | ||
Most mortgage loans are amortized — you pay more interest upfront and less toward the end of the term. At 6%, your first payment would see $2,000 go toward interest, while your final payment would have just $11.93.
"At the beginning of the loan term, the majority of the monthly payment will go toward interest. As the loan is paid down, more of the monthly payment is allocated toward the pay-down of the principal balance."
— Colleen Bara, Lending Executive, Key Bank
"Make one extra principal payment yearly and you can shave off approximately seven years of interest."
— Tanya Blanchard, Founder, Madison Chase Capital Advisors
Key Takeaway
Ralph DiBugnara's message is clear: as long as inflation stays elevated, the Fed won't cut rates — and mortgage rates will stay high. The best move for buyers isn't to wait for the perfect rate, but to shop aggressively across multiple lenders, get pre-approved, and understand exactly what drives the rate you're offered.
Originally published on The Wall Street Journal by Aly J. Yale · March 28, 2024.
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