Will Mortgages Get Down to 5% in 2023?

It's certainly possible.

Anyone looking to buy a home in 2023 is apt to face some challenges. First of all, real estate inventory is very low, which means it may be difficult to find a suitable home within a certain budget.

And speaking of budgets, staying within one is difficult given that home prices are still elevated. So are mortgage rates.

Thankfully, though, interest rates on a mortgage loan aren't as high as they were back in the fall of 2022. Back then, the average 30-year mortgage rate was over 7%. As of this writing, it's closer to 6%.

But given the way rates have trended in recent years, paying 6% on a mortgage still means paying a lot. So if you're a prospective home buyer, you may be eager to see mortgage rates drop back down to 5%. The question is: Are 5% mortgage rates possible in 2023?

Rates could continue to fall

Even though the Federal Reserve isn't done raising interest rates as part of its quest to cool inflation, those rate hikes don't tend to have the same influence on mortgage rates as they do on other consumer borrowing rates. As such, there's a good chance we'll see mortgage rates continue to slowly but steadily decline in 2023, even if it gets more expensive to borrow in other ways.

Without a crystal ball, we can't say with certainty that mortgage rates will fall to 5% this year. But there's a good chance we'll be there by the end of 2023. Whether that's enough to solve the current affordability crisis for buyers, however, is a different story.

In 2021, when home prices were elevated, buyers at least got to benefit from mortgages in the 3% range to compensate. Unless home values come down a bit in the course of 2023, many buyers might still find themselves priced out of the market even if it does get less expensive to borrow.

How to snag the lowest interest rate on a mortgage

No matter how mortgage rates are generally trending, there are steps you can take as a borrower to snag a better deal on a home loan. For one thing, make sure your credit score is solid, and work on giving it a boost if it could use some work. If you're able to get your credit score up to the high 700s or 800s, you're likely to enjoy some interest-related savings on a loan of any kind, including a mortgage.

Next, shop around with different lenders. Each one ultimately sets its own interest rate, and comparing offers could help you land a better deal.

Finally, if your budget allows for it, consider signing a 15-year mortgage. You'll score a lower interest rate by virtue of paying your home off sooner.

Of course, you may run into issues with being able to afford the larger monthly payments that come with a 15-year mortgage. But if you're able to swing them, signing a shorter-term mortgage is a great way to keep your loan's interest rate down.