Mortgage and refinance rates today, Dec. 31, and rate forecast for next week

Today’s mortgage and refinance rates

Average mortgage rates rose yesterday, over this week, and over this year. They fell across the whole of December, but not by much.

Once again, I have no prediction for mortgage rates next week. Wall Street and other global financial centers will be getting back to normal over the next seven days following festive absences. And next Friday will bring a crucial jobs report. But we’ll have to wait to see the mood investors are in and what that report says.

Happy New Year! Markets will be closed on Jan. 2 for the holiday. And our daily rates reports will resume next Tuesday.

Current mortgage and refinance rates

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Should you lock a mortgage rate today?

Don’t lock on a day when mortgage rates look set to fall. My recommendations (below) are intended to give longer-term suggestions about the overall direction of those rates. So, they don’t change daily to reflect fleeting sentiments in volatile markets.

I’ve rarely had less of a clue about where mortgage rates will head than I do now viewing January. Everything depends on how the economy holds up. If it continues to be resilient, they’ll likely rise. But if it begins to crumble under the weight of Federal Reserve rate hikes, they’ll probably fall.

My natural caution means that, for now, my personal rate lock recommendations remain:

• LOCK if closing in 7 days
• LOCK if closing in 15 days
• LOCK if closing in 30 days
• LOCK if closing in 45 days
• LOCK if closing in 60 days

However, with so much uncertainty at the moment, your instincts could easily turn out to be as good as mine — or better. So let your gut and your own tolerance for risk help guide you.

What’s moving current mortgage rates

Mortgage rates have had a terrible year, the worst for several decades. Indeed, they more than doubled. For a 30-year, fixed-rate mortgage, they began the year at 3.11% and ended it at 6.42%, according to Freddie Mac’s weekly figures.

I’m very optimistic that they’ll end 2023 appreciably lower than they’re starting it. True, I doubt we’ll see mortgage rates beginning with a 3 over the next 12 months or anytime soon. But their beginning with a 5 or even a 4 looks eminently doable during the last half of next year.

The forecasting problem arises when trying to focus on the next six months. The Federal Reserve had hoped that its savage interest rate hikes in 2022 would by now be slowing the economy. But there’s little sign of that yet.

Many people have been persuaded that the economy’s in dire shape at the moment. But it isn’t. And when you ask them about their own personal finances, they mostly say they’re doing fine. When most people are thriving, so’s the economy.

And the economic data confirm that’s the case. Employment, gross domestic product, retail sales … none of those key measures suggests the economy is in trouble.

Wait and see

But low mortgage rates typically occur when the economy is struggling. And I doubt they’ll dip far for as long as it’s doing well.

The Fed’s rate hikes will eventually slow it. But when will that be? January? This quarter? Next quarter? Who knows?

Well, we will eventually. But, for now, we and the markets that largely determine mortgage rates are in the same boat: wait and see. Ideally, markets would like to see the economy slow enough to allow the Fed to back off its rate hikes, but not so much that we get a recession.

Next week’s news

We’ll know a bit more next week. Next Wednesday brings the publication of the minutes of the last meeting of the Fed’s rate-setting body, the Federal Open Market Committee (FOMC).

Investors always pore over those minutes because they sometimes provide extra insights into the Fed’s thinking on rates. But they’ll likely pay extra attention this time because Fed rates are especially critical right now. Mortgage rates might move higher if the document suggests future hikes might be more aggressive than markets currently expect.

Next Friday sees the publication of the official employment situation report for December. This is one of those critical reports that could easily affect markets and mortgage rates.

Economists and analysts polled by MarketWatch are expecting 180,000 new jobs to be added to payrolls that month. If it’s appreciably more, mortgage rates might rise because it suggests the economy’s resilience remains intact. If it’s significantly fewer, those rates might fall.

Economic reports next week

Two economic events are most likely to affect mortgage rates next week. See above for more information about the FOMC minutes and the employment situation report.

Important reports and events are shown in bold in the following list. And I doubt any others will move mortgage rates far unless they reveal shockingly good or bad data.

• Monday — Markets closed; no reports
• Tuesday — December’s final purchasing managers’ index (PMI) for the manufacturing sector from S&P Global
• Wednesday — FOMC minutes. November job openings and labor turnover survey (JOLTS). Plus December manufacturing PMI from the Institute for Supply Management (ISM)
• Thursday — December ADP employment report for the private sector. And S&P Global’s December PMI for the services sector. Plus initial jobless claims for the week ending Dec. 31
• Friday — December employment situation report, including nonfarm payrolls (new jobs), unemployment rate and average hourly earnings. Plus ISM PMI for the services sector

Both Wednesday and Friday could prove exciting.

Mortgage interest rates forecast for next week

Much will depend next week on Wednesday’s FOMC minutes and Friday’s employment situation report. I can’t guess what those will contain, so I can’t predict where mortgage rates might move.

How your mortgage interest rate is determined

Mortgage and refinance rates are generally determined by prices in a secondary market (similar to the stock or bond markets) where mortgage-backed securities are traded.

And that’s highly dependent on the economy. So mortgage rates tend to be high when things are going well and low when the economy’s in trouble. But inflation rates can undermine those tendencies.

Your part

But you play a big part in determining your own mortgage rate in five ways. And you can affect it significantly by:

1. Shopping around for your best mortgage rate — They vary widely from lender to lender
2. Boosting your credit score — Even a small bump can make a big difference to your rate and payments
3. Saving the biggest down payment you can — Lenders like you to have real skin in this game
4. Keeping your other borrowing modest — The lower your other monthly commitments, the bigger the mortgage you can afford
5. Choosing your mortgage carefully — Are you better off with a conventional, conforming, FHA, VA, USDA, jumbo or another loan?

Time spent getting these ducks in a row can see you winning lower rates.

Remember, they’re not just a mortgage rate

Be sure to count all your forthcoming homeownership costs when you’re working out how big a mortgage you can afford. So, focus on your “PITI.” That’s your Principal (pays down the amount you borrowed), Interest (the price of borrowing), (property) Taxes, and (homeowners) Insurance. Our mortgage calculator can help with these.

Depending on your type of mortgage and the size of your down payment, you may have to pay mortgage insurance, too. And that can easily run into three figures every month.

But there are other potential costs. So you’ll have to pay homeowners association dues if you choose to live somewhere with an HOA. And, wherever you live, you should expect repairs and maintenance costs. There’s no landlord to call when things go wrong!

Finally, you’ll find it hard to forget closing costs. You can see those reflected in the annual percentage rate (APR) that lenders will quote you. Because that effectively spreads them out over your loan’s term, making that higher than your straight mortgage rate.

But you may be able to get help with those closing costs and your down payment, especially if you’re a first-time buyer. Read:

Down payment assistance programs in every state for 2021

Mortgage rate methodology

The Mortgage Reports receives rates based on selected criteria from multiple lending partners each day. We arrive at an average rate and APR for each loan type to display in our chart. Because we average an array of rates, it gives you a better idea of what you might find in the marketplace. Furthermore, we average rates for the same loan types. For example, FHA fixed with FHA fixed. The result is a good snapshot of daily rates and how they change over time.