Mortgage Interest Rates Forecast for March 2023
The mortgage interest rate forecast for March 2023 is for a slight rise in rates due to unexpectedly strong job and retail sales reports, combined with stubbornly high inflation readings. After dropping to 6.15% on Jan. 19, 2023 — the lowest 30-year conventional mortgage rates had been since September 2022 — interest rates moved back up to 6.32% for the week ending Feb. 16, 2023, according to Freddie Mac’s Primary Mortgage Market Survey (PMMS).
What is the current mortgage interest rate forecast for March 2023?
Although the mortgage interest rate forecast for March is leaning toward slightly higher rates, the overall prediction is for lower rates by the end of the year. Consumers are spending more than expected despite persistently high inflation, due in part to a solid job market and higher-than-expected wage projections for 2023.
Despite the recent uptick, it’s much too soon to say whether rates are truly on an upward trend again, said Jacob Channel, LendingTree’s senior economist. Unless inflation starts to get really bad again, Channel expects rates to stay somewhere in the 6% to 6.5% range over the coming months.
Mortgage rates this week
Rates inched up from the prior week as inflation instilled fear among mortgage lenders that the Fed’s campaign of rate hikes may not be over. Below are the U.S. weekly average rates compiled in the Freddie Mac PMMS as of Feb. 16, 2023.
- 30-year fixed-rate mortgage: 6.32%
- 15-year fixed-rate mortgage: 5.51%
What’s affecting current mortgage rates?
Recent inflation reports dashed mortgage lenders’ hopes that the Federal Reserve might be on the cusp of easing monetary policy after seven consecutive rate hikes in less than a year. The prospect of more Fed rate hikes have caused lenders to increase rates until inflation or the economy show signs of a slowdown. Strong consumer spending and job creation are signs the rate hikes may not be slowing the economy enough to push down inflation.
Inflation being worse than expected was also a reminder that the Fed is almost certainly going to hike its target federal funds rate again, Channel said. Consumer demand also plays a big role in inflation, and if retail spending and the job market remain as strong as they currently are, higher-than-ideal inflation could persist, added Channel.
What current mortgage rate predictions mean for homebuyers
Mortgage rates directly impact your monthly payment, how much you qualify for and even how much home you can buy. Lenders measure your debt-to-income (DTI) ratio by dividing your total debt — including your mortgage payment — by your before-tax income. A 43% maximum DTI ratio is the benchmark for payment affordability and a lower monthly payment equals a potentially higher loan amount.
Your DTI ratio may affect your rate after May. Fannie Mae, which sets rules for conventional mortgages, will assess an extra charge for a DTI ratio above 40%. This cost may be passed down to you in the form of a higher mortgage rate, higher closing costs or both.Higher rates mean higher mortgage payments, which may force buyers to the sidelines or into a smaller home to fit their budget. The jump in rates has already slowed purchase mortgage applications to the lowest levels of the year, according to the Mortgage Bankers Association’s weekly mortgage applications survey.
Increasing rates will mean that buying a home will likely be expensive and challenging for many — if not most — borrowers, said Channel. Still, would-be buyers shouldn’t abandon their homebuying dreams and instead should be realistic with their expectations, as today’s rates make homebuying a pricey endeavor, Channel explained.
The example below shows the reduction in buying power from January to February for a qualifying buyer earning $85,000 per year with $250 per month worth of debt at a maximum 43% DTI ratio. Rates are still significantly lower than the Nov. 10, 2022, highs — when 30-year fixed rates peaked at 7.08%.
| 30-year fixed interest rate | Maximum payment at 43% DTI ratio | Maximum home price |
|---|---|---|
| 6.15% | $2,795* | $417,290 |
| 6.32% | $2,795* | $412,069 |
| 7.08% | $2,795* | $390,065 |
*Payments include an estimated $800 annual homeowners insurance premium and $3,640 annual property tax bill.
What current mortgage rate predictions mean for refinancing in 2023
Higher rates in February deflated a flurry of refinance activity that began in mid-January, when rates were fast approaching 6%. The MBA survey for the week ending Feb. 10, 2023, showed a 13% drop in both rate-and-term and cash-out refinance borrower applications compared to the previous week. The takeaway: If you didn’t lock in a refinance rate in January, you’ll be stuck with a higher rate unless they head lower in the future.
The economy is likely to slow over the coming months, and as a result, mortgage rates will still end up lower than what they currently are by the end of 2023, Channel said. They aren’t likely to plummet, but Channel said he expects they’ll land somewhere closer to 5.5% than 6.5%.
The example below illustrates how much you could save each month by refinancing a $350,000 30-year fixed-rate mortgage from the 7.08% high of last year to the 6.32% average Freddie Mac PMMS rate. We also calculated the break-even point — the amount of time it’d take to recoup refinance closing costs, by dividing an estimated $5,000 worth of costs by your monthly savings.
| Mortgage rate | Monthly payment, savings and breakeven |
|---|---|
| 7.08% | $2,930.71* |
| 6.32% | $2,754.28* |
| Monthly savings | $176.43 |
| Life of loan savings | $63,512.91 |
| Break-even point | 28.3 months |
*Monthly payment assumes $5,469 in annual property taxes and a $1,531 annual homeowners insurance premium.
How current rates affect your monthly payment over time
The table below shows the impact that the recent drop in mortgage rates would have on a $300,000 loan, comparing a 30-year and 15-year term.
| Month and year | Loan rate type | Average rate | Monthly payment (principal and interest) |
|---|---|---|---|
| January 2023* | 30-year fixed rate | 6.15% | $1,827.68 |
| 15-year fixed rate | 5.28% | $2,416.37 | |
| February 2023** | 30-year fixed rate | 6.32% | $1,860.83 |
| 15-year fixed rate | 5.51% | $2,452.84 |
*Rates based on Freddie Mac PMMS for the week ending Jan. 19, 2023.
**Rates based on Freddie Mac PMMS for the week ending Feb. 16, 2023.
Frequently asked questions
The Federal Reserve’s monetary policy indirectly impacts fixed-rate mortgages, which typically correlate with the 10-year U.S. Treasury bond yield. The Fed’s policies have a direct effect on short-term rates, such as those tied to ARMs, credit cards and auto loans.
A mortgage interest rate — expressed as a percentage — is the base rate you’re charged to borrow a loan. Your mortgage annual percentage rate (APR) is the total cost of borrowing a mortgage (the interest rate plus closing costs and fees) and is also expressed as a percentage.
Once you’re under contract on a home and moving through the mortgage application process, you should discuss mortgage rate lock options with your loan officer. Rate locks usually last between 30 and 60 days, or even longer. Keep in mind you may have to pay a rate-lock extension fee if your loan doesn’t close before your rate lock expires.
If you can negotiate for the seller to pay for a percentage of your closing costs, you might want to use the money to buy a discount point. Also called a mortgage point, a discount point is an upfront fee paid at closing to reduce your mortgage rate. One point is equal to 1% of your loan amount.
You can haggle for a lower interest rate by using your mortgage offers as leverage and asking each lender about matching your lowest-quoted rate. You should also consider making a larger down payment, selecting an ARM loan with a lower initial rate or asking your lender about mortgage buydown options.
Despite higher rates and dwindling consumer demand, prices have remained very sticky, Channel said. If the job market continues to soften and the unemployment rate rises, Channel said the demand for housing and, in turn, prices might decrease.