Understanding Refinancing Interest Rates: A Week in Review and What You Need to Know.

Refinancing interest rates have taken different paths in the past week. The nationwide average rate for a 15-year fixed-rate refinance fell, while 30-year fixed-rate refinances rose slightly. The average interest rate on 10-year fixed refinancing also fell.

Amid its ongoing battle against inflation, the Federal Reserve announced on May 3rd a 0.25% hike in its key interest rate. Refinance rates, like mortgage rates, fluctuate daily and may see further movement in response or they may remain generally the same.

“The market has already built in expectations for a 25 basis point hike in May and no hikes thereafter,” said Scott Haymore, head of capital markets and mortgage pricing at TD Bank.

With inflation falling steadily since its peak last summer, the Fed has signaled that the end of the current cycle of rate hikes may be in sight. Depending on incoming inflation data, the Fed may keep rates where they are but not cut them until inflation hits its 2% target.

“Ultimately, more certainty about Fed actions will help offset some of the volatility we’ve seen in mortgage rates,” said Odeta Kushi, deputy chief economist at First American Financial Corporation.

Funding rates spiked when the Fed aggressively raised its federal funds rate in 2022, but we see signs that rates will slowly level off as inflation eases.

For the first three meetings of 2023, the Fed has approved smaller rate hikes — 25 basis points versus last year’s usual 75 and 50 basis point hikes — as it waits to see the cumulative impact of policy changes on inflation.

Looking at average mortgage rate data for the past year, mortgage rates peaked in late 2022 and have been trending down ever since. We’re still a long way from the record-low refinancing rates of 2020 and 2021, but borrowers could expect falling interest rates in 2023.

“Against the backdrop of easing inflationary pressures, we should see a more consistent fall in mortgage rates throughout the year, particularly if the economy and jobs slow noticeably,” said Greg McBride, CFA and chief financial analyst at Bankrate. (Bankrate, like CNET Money, is owned by Red Ventures.) He expects 30-year fixed-rate mortgage rates to end the year near 5.25%.

Regardless of where interest rates are heading, homeowners shouldn’t focus on market timing and instead should be deciding whether refinancing makes sense for their financial situation. As long as you can get a lower interest rate than your current interest rate, refinancing will likely save you money. Do the math to see if it makes sense for your current finances and goals. If you decide to refinance, be sure to compare interest rates, fees, and the APR — which reflects the total cost of borrowing — from different lenders to find the best deal.

30 year fixed rate refinancing

The average interest rate on a 30-year fixed refinance loan is currently 7.01%, up 2 basis points from what we saw a week ago. (One basis point equals 0.01%.) A 30-year fixed refinance typically has lower monthly payments than a 15- or 10-year refinance. For this reason, a 30-year refinance can be a good idea if you’re struggling to make your monthly payments. However, in return for the lower monthly payments, interest rates on a 30-year refinance are typically higher than 10- or 15-year refinance rates. In addition, you pay off your loan more slowly.

15 year fixed rate refinancing

The average 15-year fixed refinancing rate is currently 6.27%, down 10 basis points from last week. With a 15-year fixed refinance, you have a higher monthly payment than with a 30-year loan. But you save more money over time because you pay off your loan faster. Interest rates on a 15-year refinance are also typically lower than a 30-year refinance, allowing you to save even more in the long run.

10-year fixed rate refinance

For 10-year fixed refinancing, the median rate is currently 6.36%, down 5 basis points from a week ago. Compared to a 15- or 30-year refinance, a 10-year refinance typically has a lower interest rate but a higher monthly payment. A 10-year refinance can help you pay off your home much faster and save on interest in the long run. Just be sure to carefully review your budget and current financial situation to ensure you can afford a higher monthly payment.

Where does the interest go

At the beginning of the pandemic, refinancing rates reached an all-time low. But in early 2022, the Fed began raising interest rates to curb runaway inflation. While the Fed does not set mortgage rates directly, the Fed’s rate hikes have increased the cost of borrowing for most consumer credit products, including mortgages and refinancing. Mortgage rates hit a 20-year high in late 2022.

Recent data shows that headline inflation has fallen slowly but steadily since peaking in June 2022, but is still well above the Fed’s inflation target of 2%. After raising interest rates by 25 basis points in March, the Fed has indicated (PDF) that it plans to slow – but not stop – the pace of its rate hikes throughout 2023. Both factors should contribute to a gradual decline. Mortgage and refinancing rates this year, though consumers shouldn’t expect a sharp drop or a return to pandemic-era lows.

We track trends in refinancing rates using data collected by Bankrate. Here is a table of the average refinancing rates reported by lenders in the US:

Average refinancing rates

Prices from May 9, 2023.

How to find the best refinancing rate

It is important to understand that the fares advertised online often require specific eligibility conditions. Your interest rate will be affected by market conditions as well as your specific credit history, financial profile and application.

A strong credit score, low credit utilization, and a history of consistent and timely payments will generally help you get the best interest rates. You can get a good feel for average interest rates online, but be sure to speak with a mortgage expert to see the specific interest rates you qualify for. To get the best refinance rates, you should first make your application as strong as possible. The best way to improve your credit score is to get your finances in order, use credit responsibly, and monitor your credit regularly. Don’t forget to talk to multiple lenders and do your research.

Refinancing can be a good move if you can get a good interest rate or pay off your loan sooner – but think carefully if it’s the right choice for you at the moment.

When to Consider Mortgage Refinancing

In general, for a refinance to make sense, you want to get a lower interest rate than your current interest rate. In addition to interest rates, the change in the loan term is another reason for refinancing. When deciding whether to refinance, consider other factors besides market interest rates, including how long you plan to stay in your current home, the length of your loan term, and the size of your monthly payment. And don’t forget fees and closing costs, which can add up.

As interest rates rose throughout 2022, the pool of refinance seekers shrank. If you bought your home when interest rates were lower than they are today, there may not be any financial benefit from refinancing your mortgage.