Today’s Refinance Rates, Oct. 2, 2023: Rates Rise

Several important refinance rates have seen an increase this past week. While refinance rates change daily, experts predict that the rates will continue to climb.

Both 15-year fixed and 30-year fixed refinances have experienced an upward trend in their average rates over the last seven days. However, the average rate on 10-year fixed refinance has gone down.

During the pandemic, refinance rates reached historic lows of around 3%. However, the Federal Reserve’s intervention to curb inflation by raising its key short-term interest rate, the federal funds rate, caused rates to rise again. Although the Fed does not directly set mortgage rates, higher federal funds rates have a ripple effect on all types of borrowing, including mortgages and refinances.

After nearly 11 consecutive rate hikes, the Fed decided to take a break during its September 20 Federal Open Market Committee meeting. Nevertheless, since the Fed is not expected to consider rate cuts until at least 2024, experts believe that mortgage rates will remain elevated for the time being.

If inflation continues to decrease and the Fed is successful in holding rates steady, mortgage refinance rates may stabilize. However, with current refinance rates ranging from 6% to 7%, it is unlikely that they will return to the 2% to 3% range. Therefore, if you purchased a house over a year ago, refinancing to a lower-rate mortgage may not result in savings.

Regardless of where rates are headed, homeowners should base their decision to refinance on their financial situation and goals. Refinancing can save money as long as a lower interest rate can be obtained compared to the existing rate. It is essential to compare rates, fees, and the annual percentage rate from different lenders in order to find the most favorable deal.

30-year fixed-rate refinance

The current average rate for a 30-year fixed refinance is 7.95%, which is 12 basis points higher compared to the previous week. A 30-year fixed refinance generally offers lower monthly payments than a 15-year or 10-year refinance, providing more flexibility for those facing financial difficulties. However, interest rates for a 30-year refinance are typically higher than rates for a 10- or 15-year refinance, and it will also take a longer time to pay off the loan.

15-year fixed-rate refinance

The average rate for a 15-year fixed refinance loan is currently 7.02%, displaying a 4 basis point increase from one week ago. While refinancing to a 15-year fixed loan from a 30-year fixed loan will likely result in higher monthly payments, it allows for quicker loan repayment, ultimately saving money in the long run. Additionally, interest rates for a 15-year refinance are generally lower compared to a 30-year refinance.

10-year fixed-rate refinance

The current average rate for a 10-year fixed refinance is 6.84%, a 5 basis point decrease from one week ago. Although a 10-year refinance requires the highest monthly payment among all refinance terms, it features the lowest interest rate. Paying off a mortgage sooner through a 10-year refinance can lead to substantial interest savings. However, it is crucial to carefully evaluate one’s budget and current financial situation to ensure affordability of a higher monthly payment.

Outlook on rate trends

Mortgage rates fluctuate daily in response to various economic factors such as inflation, Fed policy changes, and the overall economic outlook. Throughout most of the summer, refinance rates fluctuated between 6.5% and 7%. However, rates surged above 7% in late August. With the most recent Consumer Price Index showing reduced annual inflation at 3.7%, the Fed may maintain rates for a while, although rate cuts are not expected in the near future. The cumulative effects of the Fed’s policy decisions will take time to impact the economy fully.

It is important to note that the advertised rates online often require specific eligibility conditions. Market conditions, credit history, and financial profile will influence an individual’s interest rate. To improve credit ratings and access better refinance rates, individuals should manage their finances responsibly, maintain a good credit score, and monitor their credit regularly. It is advisable to consult with multiple lenders and compare rates, considering the specific needs and circumstances.

Refinancing can be advantageous with a favorable interest rate or shorter loan term. However, it is essential to consider other factors such as the length of stay in the current home, loan term, monthly payment, and associated fees and closing costs. As interest rates have risen since 2022, the financial benefit of refinancing may be limited for those who purchased their homes when rates were lower.

Source: Here Are Today’s Refinance Rates, Oct. 2, 2023: Rates Advance – CNET