Mortgage rates ticked upward last week
The average mortgage interest rate for a standard 30-year fixed mortgage last week was 6.96%, an increase of 0.02 percentage points from the previous week’s 6.94%.
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 6.45%, an increase of 0.07 percentage points from the previous week’s 6.38%.
Fifteen-year fixed rate mortgages come with a higher monthly payment compared to its 30-year counterpart. However, usually interest rates are lower and you will pay less total interest because you are paying off your loan at a faster rate.
The average rate on a 5/1 adjustable rate mortgage (ARM) was 6.52%, a decrease of 0.01 percentage points from the previous week’s 6.53%.
With an ARM, you will most often get a lower interest rate than a fixed mortgage for say, the first five years.
But you could end up paying more or less after that time depending on your loan terms and how that rate follows the market.
What is the best term for a loan?
When picking a mortgage, it is important to pick out a loan term or payment schedule. Usually you 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.
Meanwhile, an index of U.S. pending existing-home sales unexpectedly fell in May to the lowest level on record as elevated mortgage rates and high prices discouraged prospective buyers.
A gauge of contract signings from the National Association of Realtors decreased 2.1% to 70.8 last month, the lowest reading in data going back to 2001, the group said Thursday. The median estimate of economists surveyed by Bloomberg called for a 0.5% gain.
“The market is at an interesting point with rising inventory and lower demand,” NAR Chief Economist Lawrence Yun said in a statement. “Supply and demand movements suggest easing home price appreciation in upcoming months. Inevitably, more inventory in a job-creating economy will lead to greater home buying, especially when mortgage rates descend.”
Closings on previously owned homes have been stuck near an annualized 4 million for more than a year, partly because of the so-called lock-in effect, whereby sellers are unwilling to list their homes and part with their current low mortgage rates.
Potential homebuyers are turned off by high selling prices, which hit a record $419,300 in May, although the market is gradually seeing a pickup in listings. On a call with reporters last week, Yun noted optimistically that the supply of existing homes was up more than 18% from a year ago.
“Let’s wait to see if this leads to more home sales,” he said.
A sustained easing in borrowing costs would help support sales.
Officials have penciled in just one reduction this year, down from the three cuts they expected in March.
Among U.S. regions, the Northeast and West saw slight gains in May contract signings on previously owned homes, while the pending sales indexes for the South and Midwest each fell to their lowest levels since 2010.
The pendings-sales figures tend to be a leading indicator of sales of previously owned homes, because houses typically go under contract a month or two before they’re sold.