Mortgage rates hit two-year low

U.S. mortgage rates declined last week to the lowest level since September 2022 in anticipation of Federal Reserve interest-rate cuts, stoking an influx of applications for home purchases and refinancing.

The contract rate on a 30-year fixed mortgage dropped 14 basis points to 6.15% in the week ended Sept. 13, Mortgage Bankers Association data showed Wednesday. The rate has fallen seven straight weeks, the longest such stretch since 2018-2019.

The average contract rate on a 15-year mortgage slid 29 basis points to 5.42%, also the lowest in two years. Adjustable-rate mortgages dropped to 5.66%.

Mortgage rates track U.S. government securities, and the yield on the 10-year Treasury note is hovering near the lowest level since mid-2023 ahead of an expected series of interest-rate cuts by the Fed.

Central bankers started easing monetary policy on Wednesday.

Cheaper borrowing costs helped drive a 5.4% advance in the group’s home-purchase applications index to a three-month high. The refinancing gauge surged more than 24% to the highest level since April 2022.

The extended period of declining mortgage rates may help to further boost homebuilder confidence, which increased in September for the first time in six months.

Lower borrowing costs could also help bring more prospective buyers and sellers back into a resale market constrained by a limited number of homes for sale.

The MBA survey, which has been conducted weekly since 1990, uses responses from mortgage bankers, commercial banks and thrifts.

The data cover more than 75% of all retail residential mortgage applications in the U.S.

The mortgage rate the previous week was 6.30%, according to Bankrate

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 5.64% the week prior to the recent decline, according to Bankrate.

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) last week was 5.78%, a decrease of 0.10 percentage points from the previous week’s 5.88%. 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.

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.