Published October 6, 2022

Will Mortgage Rates Fall to 4.5% in 2023?

Written by Steve Springer

Will Mortgage Rates Fall to 4.5% in 2023?

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.

That dynamic would offer relief to would-be homebuyers who’ve seen mortgage rates balloon this year.

The Federal Reserve started increasing its benchmark interest rate in March to tame stubbornly high inflation, which has resulted in higher borrowing costs for consumers — who may feel a sense of whiplash from 2020, when rates bottomed out near historically low levels.

Average rates are expected to be 4.7% and 4.4% in the first and fourth quarters of 2023, respectively — down from 5.2% in Q2 this year, according to Fannie Mae.

Still, consumers should “take forecasts with a grain of salt,” according to Keith Gumbinger, vice president of HSH, a market research firm.

“If you’re participating in the marketplace, interest rates are important but might not be the most important component,” Gumbinger said.

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.

Even a seemingly small jump in mortgage costs can have a big impact on consumers, via higher monthly payments, more lifetime interest and a smaller overall loan.

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.

Here’s another example, which assumes a buyer has an $80,000 pretax annual income and makes a $30,000 down payment. This buyer would qualify for a $295,000 mortgage if rates were 3.5%, about $50,000 more than the same buyer at a 5.5% rate, according to HSH data. That differential may put certain home out of reach.

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 and double the percentage from January this year, 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.

Will Mortgage Rates Fall to 4.5% in 2023?

Will Mortgage Rates Fall to 4.5% in 2023?

That’s the estimate from Fannie Mae. Here’s what that means for homebuyers

How mortgage rates impact your wallet

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