Mortgage rates in U.S. fall to lowest since May, dropping to 6.61%

Mortgage rates in the U.S. continued their decline, ending the year at the lowest level since May.

The average for a 30-year, fixed loan was 6.61%, down from 6.67% the previous week, Freddie Mac said Thursday.

Many industry-watchers are optimistic that the steady slide in borrowing costs – from a peak of 7.79% in late October – will fuel fresh demand for home purchases in the coming months as the market’s busiest season gets underway.

Yet listings remain in short supply, prices are still out of reach for vast numbers of Americans, and 30-year mortgage rates are more than double where they started in 2022 – all suggesting a rebound may be slow and bumpy.

A measure of contracts to buy previously owned homes held at a record low in November, the National Association of Realtors reported Thursday.

The Federal Reserve has signaled its willingness to consider a cut to its benchmark rate in the new year if inflation cooperates. Mortgages should then follow, easing burdens for house hunters.

“The rapid descent of mortgage rates over the last two months stabilized a bit this week, but rates continue to trend down,” Sam Khater, Freddie Mac’s chief economist, said in the statement.

“Heading into the new year, the economy remains on firm ground with solid growth, a tight labor market, decelerating inflation, and a nascent rebound in the housing market.”

Thirty-year fixed mortgages are the most commonly sought out loan term.

A 30-year fixed rate mortgage has a lower monthly payment than a 15-year one, but usually has a higher interest rate.

The average mortgage interest rate for a standard 15-year fixed mortgage was 6.41%, a decrease of 0.02 percentage points from the previous week’s 6.43%.

Fifteen-year fixed rate mortgages come with a higher monthly payment compared to its 30-year counterpart.

However, usually interest rates are lower and homebuyers will pay less total interest because they are paying off their loans at a faster rate.

The average rate on a 5/1 adjustable rate mortgage (ARM) was 6.41%, a decrease of 0.07 percentage points from the previous week’s 6.48%.

With an ARM, homebuyers will most often get a lower interest rate than a fixed mortgage for say, the first five years.

But they could end up paying more or less after that time depending on loan terms and how that rate follows the market.

When picking a mortgage, it is important to pick out a loan term or payment schedule.

Usually homebuyers will be offered a 15 or 30-year loan term, but it is not uncommon to see 10, 20, or 40-year mortgages, according to CNET.

Mortgages can be fixed-rate or adjustable-rate.

Interest rates in fixed-rate mortgages are set in stone for the duration of the loan.

Adjustable-rate mortgages only have interest rates set for a certain period of time before the rate adjusts annually based on the market.

Tribune News Service’s Katherine Rodriguez contributed to this story.