Best Mortgage: Today’s Mortgage Rates December 2024

Current Mortgage Rates December

Last update: 23/12/24

Recent Mortgage Rate Trends

In recent weeks, the U.S. mortgage market has experienced fluctuating rates. As of December 14, 2023, the average rate for a 30-year Fixed-Rate Mortgage (FRM) decreased slightly to 6.95%, while the 15-year FRM saw a minor increase to 6.38%. Comparatively, on December 7, the 30-year FRM rate was higher at 7.03% but decreased from 7.22% recorded on November 30. Similarly, the 15-year FRM decreased from 6.56% on November 30 to 6.29% on December 7 before rising slightly in mid-December. These changes indicate a dynamic mortgage market where rates are not consistently moving in one direction, impacting decisions for homebuyers and those considering mortgage refinancing.

Mortgage Historical and Current Rates

Source: FRED

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Mortgage Rate Industry Insights

In 2023, the mortgage rate landscape has been marked by a significant shift from the previous year's trends. After peaking at an alarming 6.80% in the last quarter of 2022, a notable departure from the 3.79% seen in Q1 2022, there's an anticipated moderation on the horizon. Industry experts and financial institutions project that by the end of 2023, mortgage rates could settle around 5.4%. This forecasted decrease, while still elevated compared to early 2022, signals a potential easing of the financial burden for prospective homebuyers.

The real estate industry has been very reactive to the changing environment. Some lenders have begun to offer mortgages with lower down payments and more flexible terms to compete with other lenders. Some lenders have created new products, such as reverse or adjustable-rate mortgages, for those needing them.

Mortgage Rates: Understanding Different Types

The mortgage rate is one of the most important considerations when buying a house. The mortgage rate is the interest rate you'll pay on your loan and can significantly impact your monthly mortgage payments. Here are some of the main types of mortgage rates:

• Fixed-Rate Mortgage: This is a common type of mortgage where the interest rate remains the same for the entire term of the loan, usually 15 or 30 years. This type of mortgage provides stability and predictability in monthly payments, which is ideal for those who don't want to worry about fluctuating interest rates.
  Example of fixed-rate mortgage: If you take a 30-year fixed-rate mortgage of $200,000 at an interest rate of 3.5%, your monthly payment would be $898.
• Adjustable-Rate Mortgage (ARM): An adjustable-rate mortgage is a type of loan where the interest rate can change periodically. This mortgage often starts with a lower interest rate and then increases over time. An ARM is a good option for those who expect their income to increase or who plan on living in the house for a shorter period.
  Example of ARM: If you take a 5/1 ARM of $200,000 at an initial interest rate of 3.5%, your monthly payment would be $898 for the first five years. The interest rate may change after the initial five years based on market conditions.
• FHA Loan: The Federal Housing Administration (FHA) offers a mortgage loan insured by the government. An FHA loan requires a lower down payment and more relaxed credit standards than a conventional mortgage. This loan is ideal for first-time homebuyers or those with limited funds for a down payment.
  Example of FHA loan: If you take an FHA loan of $200,000 at an interest rate of 3.5%, your monthly payment would be $898.
• VA Loan: The Department of Veterans Affairs (VA) offers a mortgage loan for eligible veterans and their spouses. A VA loan provides several benefits, including no down payment, no monthly mortgage insurance, and lower interest rates than other types of loans.
  Example of VA loan: If you take a VA loan of $200,000 at an interest rate of 3.0%, your monthly payment would be $865.

There are several types of mortgage rates, each with advantages and disadvantages. It's essential to carefully consider your financial situation and choose a mortgage rate that's right for you.

What Factors Determine a Mortgage Rate?

• Credit Score: People with higher credit scores, for example, 720 and above, have access to favorable rates from almost any lender. Scores below 600 are perceived as risky by the lender and will likely draw higher mortgage rate offers. 
• Down Payment: The larger the down payment upon signing, the less risk the lender takes. A down payment shows the lender the level of commitment an individual has in seeing the deal through to its end because the borrower has more to lose. Thus, the larger the down payment, the better the offered interest rate.
• Type of Loan Chosen: Numerous mortgage loans exist, such as FHA, conventional, VA, and USDA loans. The rates will differ based on the available loan types. Researching and talking to multiple lenders can help identify the best option and mortgage rate. 
• Loan Term: The payment duration also affects the mortgage rates. For instance, lower interest rates are available for loans with shorter terms. The reason is that shorter-term loans indicate less risk for lenders because borrowers may have better means to pay back the debt owed. 

How to Qualify for Better Mortgage Rates

There are a few factors that contribute to the final mortgage rate. Before signing a mortgage loan agreement, most respectable lenders review your credit score, credit history, and more. Financial behavior can be adjusted and improved to qualify for better mortgage rates. Getting better mortgage interest rates can be achieved by doing some of these things.

1. Credit Score Improvement: Credit Scores are powerful indicators to lenders about one’s financial history and trustworthiness. Since they hold a lot of weight, improving one’s Credit Score is a strong starting point for securing a better mortgage rate. Building up one’s Credit Score can be valuable for financial health and well-being. 
2. Increase the Down Payment Size: Typical mortgages require a 20% down payment. Getting access to better rates may involve offering a larger down payment. By increasing the down payment size, the size of the loan principal will decrease, usually translating into savings.
3. Lower The Debt-to-Income Ratio: The Debt-to-Income Ratio is something that lenders look at when receiving applications for a loan. The chances of finding better mortgage rates may increase by paying off debt and lowering the debt-to-income ratio before purchasing mortgages.

How Does the Federal Reserve Affect Today’s Mortgage Rates?

Federal Open Market Committee members voted on Dec 4 to increase the overnight borrowing rate by half a percentage point. This takes it to a target range between 4.25% and 4.5%. Since the 1980s, this has been the most aggressive move.

The Federal Reserve is an organization that greatly influences mortgage rates. The Federal Reserve will increase the interest rates on mortgages and other loans if they believe the economy is in danger or if inflation has increased too much.

Though the Federal Reserve does not set the mortgage rates, they are the institution that determines the federal funds rate, which in turn impacts short-term and adjustable interest rates. This means that the Federal Reserve influences the rate at which financial institutions, such as banks, lend money to one another. Thus, when the federal funds rate spikes, banks find borrowing funds from other financial institutions expensive. The result affects consumers with higher interest rates on lines of credit, auto loans, and mortgages. 

The Fed's decision to increase rates is not just about how much you can borrow. It also affects what you pay for your existing mortgage.

Tips for Shopping and Comparing Mortgage Rates

We recommend keeping several things in mind when comparing mortgage rates:

• Compare more lenders: To find the best possible rates, search for mortgages locally or from lenders in other states.
• Improve your Credit Score: Consider investing time in improving financial habits with the goal of obtaining a stronger credit rating.
• Avoid Hard Credit Checks: In most cases, lenders will perform a “hard credit pull” when applying for a mortgage. Meaning credit scores may be negatively affected when multiple hard credit checks are made in a short period of time. Instead, inquire about your current credit score and ask lenders what rates they offer to borrowers with matching qualifications before applying. This will allow for rate shopping and comparison without causing credit score harm. Discovering your current credit score for free via various financial institutions is possible.
• Consider Mortgage Rate Locks: If a borrower negotiates with the lender to lock in the interest rate on a mortgage for a certain duration, it may create more stability and predictability and, therefore, a better agreement. The borrower may be protected from an unwanted increase in the interest rate. In turn, however, this would mean that a borrower would be locked into a less favorable interest rate in the event of more favorable economic conditions that cause a decrease in interest rates.
• Mortgage Points: These are fees that a borrower pays to the lender for a reduction in the interest rates. They are also referred to as discount points, and they lower monthly mortgage payments. Each point purchased can translate into a reduction of up to 1 percent of the total loan amount. However, many individuals would consider the length of time they plan to own the home and the difficulty of recovering from the heavy purchases of said mortgage points. 

Mortgage Rates in Other States

Conclusion

When choosing a mortgage lender, there is plenty of information to cover and consider. Therefore, we recommend using a mortgage lender guide as a reference for clear, concise, and relevant information.