Average 30-Year Fixed Mortgage Rates

These higher interest rates were, as Brian would say, a bucket of cold water for the housing market. Residential real estate caught fire in 2020, as you can see from the chart below, and home prices didn’t really start coming down until interest rates started rising (which began in early 2022).

Home prices haven’t crashed, as some were predicting, but prices have remained stagnant and dropped slightly over the last 2+ years. Higher interest rates have kept many buyers on the sideline, and those who have bought are anxiously waiting for rates to drop so they can refinance their home at a more affordable rate. Potential homeowners want to know if now is the right time, or a good time, to buy, and those that bought homes since rates have increased want to know when they can refinance and get a break on their monthly mortgage payment.

Is it a good time to buy a home?

It is difficult to answer a question that is so personal. If you are someone that doesn’t have anything saved for a down payment and can’t afford a reasonable mortgage payment, it is probably a really bad time for you to buy. If you are on the opposite end of the spectrum and have a large down payment saved and can comfortably afford a mortgage payment at today’s interest rates, it might be a great time to buy. Instead of trying to time the market and buy at the “right time,” buy a home when it makes sense for you. Check out our ultimate guide to buying a home if you are thinking about buying a home or may be purchasing a home in the near future.

To ensure you can comfortably afford a home, ask yourself what would happen if everything went wrong for you. If you can feel good about your answers to the questions below, there’s a good chance you can successfully buy a home.

• Will I be okay if my home is worth less in 5 years?

Home prices don’t drop often, but they typically take longer to recover than the stock market. If you are purchasing a home, you need to be prepared for the worst case scenario of your home dropping in value. This usually means planning to stay in the home at least 5-7 years, or longer if you put down less than 20%, to ensure you are never in a situation where you are forced to sell when you are “underwater” on your home (owing more than the home is worth).

• What if mortgage rates don’t drop anytime soon?

It is very difficult to predict the future of mortgage rates, and if you are purchasing a home, it should be a financially smart decision regardless of whether interest rates drop, go up, or stay steady. Would it be great if rates dropped significantly over the next few years and you could suddenly cut your mortgage payment by 50%? Absolutely. While that is a possibility, you should not count on being able to refinance anytime soon when buying a home. You should be able to afford your monthly mortgage payment on the day you buy (which means it should be no more than 25% of your gross income).

• What if the home requires more repairs than I thought?

Certain major home expenses can be planned for, but many are unexpected and can be devastating if you aren’t prepared. What happens if you need to replace your HVAC unit in the first few months of buying a home? That happened to me. How soon will you need to replace your roof? What is your plan if major appliances fail? Make sure you are financially prepared for the unexpected before buying a home.

• How stable is your household income?

Preparing for the unexpected means thinking about the possibility of uncomfortable events; what would happen if you or your spouse lost your job after buying a home? Do you have multiple sources of income in your household? How easy would it be for you or your spouse to find a new job with a comparable income?

Thinking about how everything could go wrong when you buy a home isn’t fun, but it is a necessary evil to make sure you can truly afford your home and avoid potential financial disaster. It may be unlikely that home prices drop, it may be unlikely that mortgage rates stay high for a long period of time, you may not experience major issues with your home after purchasing it, and you might not experience a negative change in income. However, all of these events are very possible and should be seriously prepared for before purchasing a home.

When can I refinance my mortgage?

I can’t wait until the day I get a call from our mortgage broker, telling me how much he can save us if we refinance our home. Considering we have almost 30 years left on our mortgage, this call will probably come before we pay off our home – but when will it? In 2022 when mortgage rates first hit 7%, I did not think rates would still be around 7% over two years later. Rates could very well be lower in two years, they could very well be higher, and they could very well be about the same.

I made peace with the fact that we locked in a good rate for the time we bought and we will refinance our mortgage when it makes financial sense to do so. It would be incredible to suddenly save a pretty significant amount of money every month on our mortgage, but we made sure we bought a home we could afford at current interest rates. When you are evaluating the affordability of different homes, it is best to assume you won’t have the ability to refinance your home anytime soon.

Mortgage rates could be higher for longer than most people thought. That might affect your ability to buy a home or make your current home more affordable. It would be great if we had a crystal ball and could tell you, “Yes, buy a home that’s a bit out of your budget because you can refinance in May of 2026 at 2.75%. Also my crystal ball tells me you will never lose your job, your home won’t need any major repairs, and housing prices will keep going up.” It would be such an easy decision if that was the case! Until we are able to predict the future with 100% certainty, it is best to err on the side of caution and anticipate what could go wrong when buying a home. It is much better to be wrong about everything going wrong than to be wrong about everything going right.

Online banks vs. brick-and-mortar

I am (barely) old enough to remember when the general public was skeptical of banking online and preferred face-to-face banking rather than using a website or app. Now, only 29% of Americans prefer banking in-person. Almost all brick-and-mortar banks offer online services to their customers, but they still lag behind in many key areas. Online-only banks offer APYs 10x higher than traditional banks. It’s not all the fault of the brick-and-mortar bank; the cost to maintain physical locations certainly means they can’t compete as well on savings account interest rates.

We don’t necessarily advocate for dumping your brick-and-mortar bank, but we do think everyone should at least investigate whether or not an online bank might be a better solution for your savings account due to the difference in interest rates. If you don’t mind having more than one bank in your life, you could keep some money at your local bank and the rest in an online, high-yield savings account. There are valid reasons to utilize the services of a brick-and-mortar bank. If you are a server or in another industry where you handle a lot of cash, it is much easier to deposit that cash if you have a physical bank to go to. Sometimes it’s just easier to go down to your local bank and talk to someone rather than dealing with online customer support. An online bank may be able to meet all of your banking needs, but some still need, or want, the services offered by a brick-and-mortar bank.

How to choose the right online bank

Online banks attract consumers because of their convenience and higher interest rates than brick-and-mortar competitors. For those worried about safety, online banks typically have the same FDIC coverage as traditional banks. For most consumers, your money is just as safe at an online bank and you get the convenience of banking online and are typically rewarded with higher interest rates.

There are more online banks now than there were in the past, but a large number of them aren’t actually banks. Many of the most popular and fastest-growing banks aren’t actually banks at all, but financial technology companies backed by real banks, or neobanks. This isn’t necessarily a problem, as your money is still technically held at a real bank that is almost always FDIC-insured, but it can cause some issues you wouldn’t experience if you were using a real online bank.

Yotta is a popular financial technology company, or neobank, that has gamified saving money on their platform. They may have taken it a little too far, leaning too heavily into the gamifying aspect of their services, and ultimately, turning into a form of gambling. Now customers are unable to get their money out of the financial technology company. Perhaps the largest bank-that-isn’t-actually-a-bank, Chime, has its own share of unique issues. I am a former customer of Chime and was a little unsettled reading horror story after horror story of other customers having their account closed for no reason and often unable to get their money back. ProPublica covered the issue in-depth and made sure to emphasize that Chime was not, in fact, a bank.

The worst-case scenario of your account being closed or being unable to access your money might not happen to you, but I have found financial technology companies that offer banking services prioritize the technology over the banking services. With my former neobank, the website was seriously barebones, and you could only do most things from the app. This isn’t always a problem, but sometimes I only had access to my computer. The final straw was being unable to order checks. Yes, I know hardly anyone uses checks anymore, and I use them so infrequently that it hadn’t been an issue, but my neobank was unable to provide me with checks even though I was willing to pay for them.

Online banks are great, but it may be worth sticking with an actual online bank instead of a financial technology company that isn’t a true bank. Myself and some others at The Money Guy Show use Ally Bank. They offer competitive savings account rates and they have been in business for over 100 years now. No matter what bank you end up choosing, look for a bank that is actually a bank, is FDIC insured, offers competitive rates, and didn’t just pop up overnight.

A checking account at a bank isn’t as sexy as a Roth IRA or 401(k), but having a great bank is foundational to your financial life. It can mean the difference between your money being there when you need it or your money not being there. A higher yield on your savings account might mean achieving financial goals, like saving for your first home, just a little bit sooner. Don’t overlook your decision of who to bank with, and while switching banks is never easy, it could put extra money in your pocket or even save you from a nightmare scenario of losing access to your money.

Have questions about how to buy a home in this crazy market, ways to beat the system, and common mistakes home buyers make? Check out our Money Guy Guide to Buying a House!

How the expectation for rate cuts have changed this year

In January, prediction markets expected 5 or 6 interest rate cuts this year, which would significantly reduce the Federal Reserve target interest rate. Now, the consensus has dropped to between 1 or 2 interest rate cuts this year.

It is still very possible the Federal Reserve does not cut interest rates at all this year. Chair Jerome Powell has long said the central bank needs to see more evidence that inflation is on its way down to the long-term target of 2%, and in recent months inflation has been moving in the wrong direction. Data for March shows the overall Consumer Price Index (CPI) coming in at 3.5% year-over-year, hotter than expected and well above the 2% target.

This change in expectations may be very frustrating to consumers and businesses looking for interest rates to drop so they can make large purchases, like a home, or expand their business. For anyone that understands how inflation works, the dramatic change in expectations shouldn’t be surprising at all. Here’s why forecasting inflation, and interest rates, is so difficult.

Why forecasting inflation is so difficult

The last period of high inflation our country experienced, before 2020, began in about 1972 and lasted until 1983. As you can see from the chart below, inflation did not rise and then subside. Inflation seemingly peaked in late 1974, then came back and actually peaked in 1980.

The federal funds rate also had several peaks, and topped 19% before declining (if you think mortgage rates in the 6% or 7% range are bad, try 19% or 20%).

I am not predicting we will see a resurgence in inflation like we did in the 1970s and 1980s. I am saying that the future of inflation is very difficult to predict, and it may have a lot to do with consumer expectations.

Inflation expectations can influence reality

Consumer expectations for inflation remain elevated. Consumers aren’t expecting high inflation, but they expect inflation to remain higher than the Federal Reserve target of 2% in the short-term (one year) and medium-term (five years). Just like actual inflation, expected inflation has stalled out around 3% and doesn’t appear to be budging. It should be no surprise that actual inflation and consumer expectations seem to mirror one another. If you expect prices to keep increasing, you may spend more now while prices are lower.

Consumer spending is still increasing very sharply month over month, which creates sort of an inflation loop. Consumers expect inflation to remain elevated, although not as high as several years ago, and keep spending money like there’s no tomorrow. Consumer spending fuels inflation, which in turn fuels the belief that inflation will remain elevated. See now why it isn’t so easy to predict the future of inflation?

How you can win financially regardless of inflation

Persistently high inflation and interest rates can be very frustrating for those trying to borrow money, but it is still very possible to build wealth and make smart financial decisions no matter what inflation or interest rates do. If you want to help protect your wealth from inflation, owning assets like stocks and real estate are some of the best ways to hedge against inflation. If you are looking to borrow a large amount of money and want interest rates to drop, consider only borrowing what you can afford now or waiting for rates to drop. Do not borrow money at a rate you can’t afford in the hopes that interest rates will drop in the near future and allow you to refinance.

We created several awesome tools on our website to help you think through some of these big life decisions. Check out our home-buying calculator to determine how much house you can afford based on your income and current interest rates. If you are looking to buy a car, give our car-buying calculator a go.

Nobody likes high inflation, and anyone taking out a mortgage now probably feels sick to their stomach that they are getting a rate in the 6s or 7s instead of the 2s or 3s of a few years ago. At The Money Guy Show, we strongly believe that you can build wealth and make smart financial decisions even in less than ideal periods of high inflation, and we are committed to giving you the tools to help you along the way.

Will inflation ever get back under control? What does that mean for investing in the stock market? In this highlight, Brian and Bo give some insight on the current state of interest rates and what we should expect.

Want to know what to do with your next dollar, you need this free download: the Financial Order of Operations. It’s our nine tried-and-true steps that will help you secure your financial future.

Housing prices skyrocketed after the pandemic to all-time highs, and mortgage rates have more than doubled since 2020. Homes are harder to purchase for more Americans, which means it’s more important than ever to make sure you are ready to buy before purchasing.

In this episode, you’ll learn:

• What the current housing market looks like
• How to know if you’re ready to buy a house
• Important questions we think you should ask yourself before buying a house

Enjoy the Show?

• Sign up for the Financial Order of Operation (FOO) Online Course!
• Sign up for our Know Your Number Course!
• Check out our Net Worth Tool!
• Get FREE downloads full of financial advice from our Resource Page!
• Subscribe on YouTube or wherever you listen to podcasts.
• Send us your questions or share your story.

If you have any questions (or just want to say hi!), join the conversation on Facebook, Twitter, Instagram, or Tik Tok!

Housing prices skyrocketed after the pandemic to all-time highs, and mortgage rates have more than doubled since 2020. Homes are harder to purchase for more Americans, which means it’s more important than ever to make sure you are ready to buy before purchasing.

In this episode, you’ll learn:

• What the current housing market looks like
• How to know if you’re ready to buy a house
• Important questions we think you should ask yourself before buying a house

Enjoy the Show?

• Sign up for the Financial Order of Operation (FOO) Online Course!
• Sign up for our Know Your Number Course!
• Check out our Net Worth Tool!
• Get FREE downloads full of financial advice from our Resource Page!
• Subscribe on YouTube or wherever you listen to podcasts.
• Send us your questions or share your story.

If you have any questions (or just want to say hi!), join the conversation on Facebook, Twitter, Instagram, or Tik Tok!

In this highlight, we discuss if the Fed will raise interest rates again in 2023 and what you should expect.

Earlier this month, in the midst of rising inflation and difficulty filling job openings, the Federal Reserve announced that it was accelerating plans to remove monetary support from the economy. This monetary support includes purchasing and holding securities, such as Treasury securities and mortgage-backed securities, and keeping interest rates low to encourage borrowing and increase consumer demand.

How do low interest rates help the economy?

The benchmark interest rate set by the Federal Reserve determines what consumers and businesses pay to borrow money. If interest rates are low, money is cheap; borrowing is encouraged and demand for goods increases. In times when the economy slows down, the Federal Reserve lowers interest rates as a way to spur consumer demand and economic growth. If people can borrow money cheaper, they’ll buy more houses, cars, and TVs.

At a certain point, the supply of cheap money outpaces the supply of goods and services that consumers want. We’re all seeing this happen across the country and across the globe. People are having trouble buying the goods they want, from houses to cars to consumer electronics and even household staples like cream cheese. Part of the supply problem is caused by well-documented supply chain issues, but others are simply caused by an increase in demand due to the availability of cheap money. More homes are forecast to be sold in the United States in 2021 than in any year since 2006 (and this isn’t solely due to consumers who put off buying a home in 2020 because of the pandemic buying homes; more homes were sold in 2020 than in 2019). The price of gasoline, which reflects the increased “demand” by consumers to travel and go on vacations, is at its highest level since 2014.

How inflation can hurt the economy (and consumers)

In the second quarter of this year, inflation was at its highest rate since the early 1980s – prices were up 2.05% from the previous quarter, or 8.19% annualized. Inflation came in at 1.62% last quarter, or an annualized rate of 6.47%. The Federal Reserve officially retired the word “transitory” and acknowledged inflation, or price changes, could no longer be considered short-term. This doesn’t necessarily mean we will be experiencing higher inflation for years to come, but it does mean prices likely aren’t going down anytime soon as some had hoped.

Earlier in the year, the belief was that as factories and workers resumed normal operations everything would begin to return to normal; supply of goods and services would increase enough to meet consumer demand and prices would moderate. We are still seeing shortages in many areas of the economy, and higher prices are no longer restricted to PlayStation 5s and used cars. Everyone in the country is feeling the impact of inflation, from the gas pump to the grocery store.

Almost nobody likes inflation. Workers that haven’t received raises in a year might essentially be receiving a 6% to 8% pay cut courtesy of inflation. Workers that have received raises might still be getting a small pay decrease, after inflation, or might be getting just enough to keep up with inflation. Across the United States wages are “rising,” but after accounting for inflation, real wages are actually going down month after month. The chart below shows the month-over-month percent change in real hourly wages since the beginning of the year. Overall, real wages are down 2.62% so far in 2021 (data for December is not yet available).

Will the Federal Reserve be able to rein in inflation?

The Federal Reserve expected inflation to self-moderate to a degree this year, but instead they will be forced to deploy measures to combat inflation sooner than expected. The majority of Federal Open Market Committee (FOMC) members recently projected three interest rate hikes in 2022. Some predicted less and one member predicted four hikes. Raising rates three times in 2022 would bring the baseline interest rate range to 0.75% to 1.00%.

Raising interest rates three times in 2022 is a drastic shift in the position of the majority of board members from earlier this year. In March, 14 of 18 FOMC members projected rates to remain at the same level through 2022; 11 of 18 members projected rates to remain unchanged through 2023. Most members did not project rates rising until 2024. Now every single member of the FOMC projects rates rising next year, with most foreseeing three hikes.

The need to raise rates is not necessarily a bad thing; it means the Federal Reserve is able to withdraw support from the economy earlier than expected. They are withdrawing that support, however, to moderate inflation. Will raising interest rates help bring down inflation?

Higher interest rates mean consumers will be able to borrow less and will have less to spend on goods like cars and houses. When making a purchase, many consumers only consider the monthly payment. Let’s assume an average American wants to buy a new car. They might take out a 72 month loan, the average auto loan term for new vehicles (our rule of thumb for new car purchases is to put 20% down, pay the loan off in 3 years or less, and keep all of your car payments to 8% of your gross income or less).

The price of the car might not be that important; they just know they can spend $500 per month. If they are able to get an interest rate of 2% on their new car, they can borrow $33,897. If the lowest interest rate available to them goes up to 4%, they will now be able to only take out a loan for $31,959. This hypothetical consumer (that’s representative of how many Americans spend and think about money) will have 5.7% less to spend on a new car because interest rates went from 2% to 4%.

Substitute cars for houses, student loans, or almost anything; as interest rates rise, consumers are able to spend less on goods and services they are borrowing to pay for. As the cost of borrowing increases, Americans are forced to cut back. Maybe they purchase a smaller car, a smaller house, or chip away at their credit card balance since the interest rate has gone up. This helps moderate inflation: if money isn’t as cheap, demand and price increases should slow down.

Raising interest rates also encourages saving. Consumers are more likely to deposit money in a savings account rather than spend it if they are making 2% instead of 0%. Holding cash when savings accounts and cash-equivalent vehicles are paying near 0% doesn’t seem very prudent; when interest rates rise, saving in cash-equivalent accounts becomes more attractive, and when consumers choose to save rather than spend, this also helps moderate inflation.

What can a Financial Mutant do about rising interest rates?

Rising interest rates hurt borrowers; you can help protect yourself from rising rates by eliminating consumer debt like credit card debt. In the next few years, interest rates on cars and houses might get higher. If you own a house already but haven’t looked at interest rates in a few years, now might not be a bad time to consider refinancing and locking in a low interest rate (you can grab our free refinancing guide on our website). If you don’t have a house yet but are considering buying, the potential of rising interest rates doesn’t necessarily mean you need to run out and buy a house so you can lock in low interest rates; higher mortgage rates could hurt demand for housing and stabilize home prices.

So much about inflation and monetary policy has changed and evolved throughout 2021. The only thing we know for certain is it will continue to change and evolve with the economy next year. Experts don’t know exactly what will happen – remember, at the beginning of 2021 the consensus was that interest rates would remain at 0% until 2024, and now the consensus is rates will rise next year – and projections and opinions are certainly subject to change.

The uncertainty surrounding inflation and interest rates can be frustrating. We like control of our lives and especially of our money. Spending more and more on gasoline and groceries each month doesn’t make one feel in control of their money. To keep yourself sane, it’s important to focus on what you can control. We know one of the best hedges against inflation is owning things, like stocks and real estate. Getting rid of any consumer debt will help protect you from rising interest rates. While inflation and monetary policy might be beyond your control, your financial future is firmly in your own hands. Focus on that instead of what you can’t control.

When most people refinance their mortgages, they’re doing it wrong. Let’s make sure you’re not one of them! We break down how refinancing works, when it’s a good time to refinance, and how to make sure you’re actually saving money and doing it right.

In this episode, you’ll learn:

• 5 reasons why homeowners refinance
• The dangers of refinancing
• The right and wrong ways to refinance

Research and resources from today’s episode:

• ClosingCorp Reports Average Mortgage Closing Cost Data (ALTA)
• America’s homes are bigger than ever (CNN Money)
• Amortization Schedule Calculator (Bankrate)
• Today’s Mortgage Rate are Down! (Quicken Loans)

Enjoy the Show?

• Get FREE downloads full of financial advice from our Resource Page!
• Subscribe on YouTube or wherever you listen to podcasts.
• Leave us a review on Apple Podcasts.
• Send us your questions or share your story.

If you have any questions (or just want to say hi!), join the conversation on Facebook, Twitter, or Instagram!