Average mortgage rate: Everything you need to know

Average mortgage rates nearly doubled in 2022. Read this article to find out how the rates compared to other countries and what experts are predicting for 2023

Average mortgage rate: Everything you need to know

Mortgage rates depend on numerous factors, including the broader economic outlook and the individual borrower. Therefore, mortgage rates can fluctuate wildly not only within the same year—but within the same week, as well.

In 2022, for example, the average 30-year mortgage rate was under 4%. By the end of the same year, that number had risen to over 7%. And at the beginning of January 2023, the US national average 15-year fixed refinance dropped 21 basis points from the previous week, to just under 6%.

While factors out of your control—like the Federal Reserve increasing the base interest rate to combat inflation—can impact mortgage rates overall, there are steps you can take to lower your own mortgage interest rate. (Shopping around and making a larger down payment are a couple of ways.)

Here is everything you need to know about the average mortgage rate, from what impacts it to how other countries compare to how to secure a better rate.

Average mortgage rate

As of January 2023, the average rate for a 30-year fixed mortgage was 6.46%, which was down six basis points from the previous week. That same day, the national 30-year refinance rate was at 6.50%, which was a drop of 11 basis points from the previous week. The US national average 15-year fixed refinance, meanwhile, was down 21 basis points from the past week to 5.94%.

By comparison, Canada’s central bank is expected to increase mortgage interest rates by 0.25% in early January 2023 to 4.50%. In the UK, on the other hand, the average rate for a five-year fixed-rate mortgage is 5.24%.

These numbers will, of course, fluctuate from week to week, especially during this time of volatility.

Is a 4% mortgage rate high?

Currently, a 4% mortgage rate would be considered low. If that question was asked at the beginning of 2022—when 30-year mortgage rates for conforming loans was 3.77%–instead of the end of 2022—when the same mortgage rates were 7.06%—the answer would have been, yes, a 4% mortgage rate is high.

That’s because mortgage rates are not only different depending on each individual borrower; but in today’s market, mortgage rates fluctuate even within the same day. In other words, a mortgage rate that is considered high one day could be considered low the next, and vice versa.

Is 4.75% a good interest rate for a mortgage?

Currently, yes—4.75% is a good interest rate for a mortgage. While mortgage rates fluctuate so often—which can affect the definition of a good interest rate for a mortgage—4.75% is lower than the current average for both a 15-year fixed loan and a 30-year mortgage.

At the end of 2022, good mortgage rates for 15-year fixed loans generally started around 5%. Good rates for 30-year mortgages, on the other hand, generally started in the 6% range. Specifically, in November 2022, the average 30-year fixed rate was 6.61%, according to Freddie Mac. That weekly survey represented a wide range of borrowers, so keep in mind that anyone with solid finances can typically get rates significantly below average.

Predictions for average mortgage rates in 2023

Industry insiders surveyed by The Mortgage Reports predicted that 30-year fixed-rate mortgages in 2023 could be as low as 5% to just over 9%. If 2023 follows the same trend as 2022—rising steadily before seeing a significant drop at the end of the year—the end of this year could see average mortgage rates stall between 5% and 6%.

Specifically, experts predict the average 30-year mortgage rates to be between 5.0% and 9.31% this year and the average 15-year fixed mortgage rate to be between 4.5% and 8.75%. That means the average mortgage rate forecast for 2023 is 7.0% for 30-year fixed rates and 6.42% for 15-year fixed rates. If these predictions held true, that would make 4.75% a good interest rate for a mortgage.

Why are mortgage rates so high?

While there are many economic factors, generally, the average mortgage rate right now is so high because the Federal Reserve has been raising the base interest rate to combat inflation, meaning banks pay more interest. To maintain their margins, banks then pass on higher rates to their customers.

The Fed is raising interest rates because the cost of living is rising too much, and raising rates will slow the economy, i.e., more expensive mortgages, credit card debt, car loans, etc., mean consumers have less money to buy other goods and services. With lower revenues come less spending, fewer wage increases, and an economic slowdown overall.

The purpose of all this is that price increases halt, therefore slowing inflation. Once again, high mortgage rates can result from numerous factors, but base interest rate increases to fight inflation have had an impact.

How can I lower my mortgage interest rate?

Lowering your mortgage interest rate can benefit you in numerous ways, whether you want to put the extra money toward a family vacation or for home improvements. Here are some ways to lower your mortgage interest rate, which can be done during the life of the loan or at signing:

  1. Shop around
  2. Improve your credit score
  3. Be selective with your loan term
  4. Make a large down payment
  5. Purchase mortgage points
  6. Rate locks
  7. Refinance your mortgage

To better help you lower your mortgage interest rate, let’s take a closer look at each.

1. Shop around

It is important to shop around to different lenders when you are deciding on a mortgage. The reason shopping around is so beneficial is that mortgage bankers, local credit unions, regional banks, and national banks each offer unique loan products—each with unique fees and rates. You may find, during your shopping, that some lenders excel at refinancing while others cater to new homebuyers. Another reason is that by looking at all of them you can find out the average mortgage rate for your area.

Therefore, when choosing a lender, ensure that you carefully compare your choices and account for your personal financial situation. Listen to your real estate agent, yes; but also conduct your own research to make sure you are securing the best deal for you and your needs.

Because mortgage rates fluctuate so often, contact various lenders on the same day and roughly the same time to get a better comparison. When calculating the possible savings, make sure to factor in any associated fees.

2. Improve your credit score

If you have a high credit score, you are likely to get a better mortgage rate regardless of the loan you decide on. Like when you make a large down payment, having a high credit score may help you qualify for lower monthly payments and better rates.

The reason credit score is so important is that it indicates to lenders your level of risk. If you have a low credit score, for instance, you will be seen as a greater risk. Therefore, applicants with lower credit scores face higher interest rates. Conversely, if you have a good credit score, you will be offered a lower interest rate. You can opt for a mortgage refinance if you improve your credit score after you’ve gotten a loan.

Read more: Does refinancing hurt your credit?

The first step to improving your credit score is to review your credit report to determine if you have outstanding balances. If so, pay those balances and make your payments promptly each month. If you detect any errors on your credit report which can negatively affect your credit, be sure to correct them.

3. Be selective with your loan term

Short loan terms are less of a risk and therefore come with lower mortgage rates. Of course, in exchange for the lower mortgage rate you will likely have higher monthly payments. The reason is that you are paying off the principal in less time. Long loan terms spread the payments out over a longer period, which leaves you with lower monthly payments and higher interest rates.

Long-term loans will likely provide you with more disposable income each month, while short-term loans typically save you more in the long run. This makes a short-term loan a better bet, if you are looking for low mortgage interest rates specifically, as well as savings over the life of the loan.

4. Make a larger down payment

You will owe less on the loan if you make a larger down payment. It also means you will have more equity in your property from the beginning. In that case, you will have to repay less principal, and you will have to pay less interest over the life of the loan, because it is calculated on the principal owed.

Of course, there are loan options with a low down payment. If, however, you can afford a larger down payment, you will reduce your monthly payments and mortgage rates. Viewed another way, a smaller down payment will mean you are more of a risk to lenders—and you will have to pay a higher interest rate.

There are ways lower your mortgage interest rate to secure your dream home. LinkedIn

5. Purchase mortgage points

Purchasing mortgage points can be a good way to save money if you plan on owning your property for a long time. Mortgage points, which are paid at closing, has a value of 1% of your mortgage. In exchange, the monthly mortgage payment and the interest rate is reduced.

However, it could take time to recoup your savings. To determine this, you will have to keep your eye on the break-even point, which is the length of time in months it will take for your total savings to add up to the cost of the points. If the break-even point is longer than you plan to own the property, purchasing mortgage points may not be worth it.

6. Rate locks

You can also lock in your interest rate, to lessen the impact of fluctuating mortgage rates. You can do this before you close on the property. While it may cost you a fee, it could be worth it if you suspect that rates may increase.

The gamble is that it protects you from increasing mortgage rates but prevents you from benefitting from lower mortgage rates. You may want to ask your lender about rate locks that contain float down provisions, which give you a one-time opportunity to lower your locked-in rate to present market rates. Again, this may cost an additional fee.

7. Refinance your mortgage

You may save money over the life of the loan if you renegotiate the terms of your mortgage. While there are many refinancing options open to you, there are also benefits and risks.  

One option is to refinance your home loan with a fixed-rate mortgage. This is best if you are concerned about an upcoming increase in your adjustable-rate mortgage (ARM). It will also help you make consistent monthly principal and interest payments.

Another option would be to negotiate your fixed-rate mortgage to a lower interest rate. This will be more realistic if you are in a solid financial situation than you were when you first signed your mortgage loan. It is also great if your credit score has improved or if rates have dropped. To better suit your financial needs, you may want to renegotiate the length of your loan when refinancing a fixed-rate mortgage.

While there are ways that you can lower your mortgage rate, there are also factors that increase (and decrease) the average mortgage rate that are beyond your control. However, now that you know what a good mortgage rate is, why they are currently as high as they are, and what the predicted averages are, you will be able to make more informed decision to secure the best rate for you.

If you are finding that the average mortgage rate in your area is too high, check out our article on the states with the ten lowest average mortgage rates. Maybe your new home is somewhere else.

Do you have experience with mortgage rates? Let us know in the comment section below.