Great News for Mortgage Rates

Good News for Mortgage Rates

brennan McCarthy, CFP

Mortgage rates have fallen to the lowest level since September 2022, bringing a wave of relief to potential homebuyers and those looking to refinance. As of now, the average 30-year fixed-rate mortgage stands at 5.990% for borrowers with strong credit ratings.

This decline in mortgage rates aligns with recent actions by the Federal Reserve. The Fed has cut overnight interest rates by 0.050%, bringing them down to a range of 4.75% - 5.00%. This move was anticipated by many experts and has contributed to the downward trend in mortgage rates.

What This Means for Borrowers

For those who purchased a new home over the past 18-24 months, this could be an opportune time to refinance to a new, lower rate. Lower mortgage rates can significantly reduce monthly payments and the overall cost of a loan over its lifetime.

Additionally, many of the young homebuyers can come off the sidelines to start looking for a new home to purchase. For example, a home purchase in the late fall of 2023 would have resulted in a ~7.5% mortgage rate. For a purchase with a mortgage balance of $500,000, the monthly Principal & Interest payment was ~$3,500/month.

The same mortgage balance at 6.0% would yield a monthly payment of $3,000/month. That is, $500 in monthly savings.

General wisdom says that a refinance makes sense if a borrower can reduce their rate by 1.0%; however, the current environment could warrant a different strategy. While nobody can predict where rates will bottom out, it is safe to assume that they will continue falling. It’s also safe to assume that mortgage rates will not reach the low, sub-3.0% mortgage rates of 2020 and 2021.

The Federal Reserve’s Role

The Federal Reserve’s decision to cut interest rates is part of its broader strategy to manage economic growth and inflation. By lowering the cost of borrowing, the Fed aims to stimulate spending and investment, which can help bolster the economy.

Looking Ahead

While the current mortgage rates are favorable, it’s essential for borrowers to stay informed about potential future changes. Economic conditions, inflation rates, and Federal Reserve policies will continue to influence mortgage rates. The expectation is for the Federal Reserve to continue steadily dropping rates over the coming months to eventually settle in around the inflation rate, which is currently sitting at 2.5%.

In summary, the recent drop in mortgage rates to their lowest levels since September 2022 is a positive development for borrowers. With the Federal Reserve’s recent rate cut, the trend of lower mortgage rates is expected to continue, making it an excellent time for those considering a new mortgage or refinancing an existing one.