Rates Down, Should Fall Further as Inflation Slows

Mortgage rates are down across the board this week in response to better-than-expected inflation data.

Just last month, many feared 30-year mortgage rates would finally surpass 8%, making mortgages even more unaffordable for the average homebuyer. Today, rates are back down and hovering near 7%. 

As inflation continues to slow and the Federal Reserve is able to stop hiking the federal funds rate, mortgage rates should come down even further. It’s possible we’ll even get one or two rate cuts from the Fed by this time next year, which would allow mortgage rates to fall more substantially.

But at the moment, mortgages are still prohibitively expensive for many would-be buyers. If you’re hoping to purchase a home at some point in the foreseeable future, you may finally get an opportunity to do so by the time the 2024 buying season rolls around.

In the meantime, work on saving as much as you can for your down payment and getting your credit score up. That way, when rates do fall, your finances will be in a place where you have access to the best pricing mortgage lenders can offer.

30-Year Fixed Mortgage Rates

The average 30-year fixed mortgage rate was 7.50% last week, according to Freddie Mac. This is a 26-basis-point decrease from the week before.

The 30-year fixed-rate mortgage is the most common type of home loan. With this type of mortgage, you’ll pay back what you borrowed over 30 years, and your interest rate won’t change for the life of the loan.

The lengthy 30-year term allows you to spread out your payments over a long period of time, meaning you can keep your monthly payments lower and more manageable. The trade-off is that you’ll have a higher rate than you would with shorter terms or adjustable rates. 

15-Year Fixed Mortgage Rates

Average 15-year mortgage rates were 6.81% last week, according to Freddie Mac data, which is a 22-basis-point drop from last week.

If you want the predictability that comes with a fixed rate but are looking to spend less on interest over the life of your loan, a 15-year fixed-rate mortgage might be a good fit for you. Because these terms are shorter and have lower rates than 30-year fixed-rate mortgages, you could potentially save tens of thousands of dollars in interest. However, you’ll have a higher monthly payment than you would with a longer term.

Are Mortgage Rates Going Up?

Mortgage rates started ticking up from historic lows in the second half of 2021 and increased significantly in 2022. But mortgage rates are expected to trend down this year.

In the last 12 months, the Consumer Price Index rose by 3.2%. As inflation comes down, mortgage rates should, too. But we’ll likely need to see price growth slow further before we see substantial drops in rates.

For homeowners looking to leverage their home’s value to cover a big purchase — such as a home renovation — a home equity line of credit (HELOC) may be a good option while we wait for mortgage rates to ease. Check out some of our best HELOC lenders to start your search for the right loan for you.

A HELOC is a line of credit that lets you borrow against the equity in your home. It works similarly to a credit card in that you borrow what you need rather than getting the full amount you’re borrowing in a lump sum. It also lets you tap into the money you have in your home without replacing your entire mortgage, like you’d do with a cash-out refinance.

Current HELOC rates are relatively low compared to other loan options, including credit cards and personal loans. 

How Do Fed Rate Hikes Affect Mortgages?

The Fed has been increasing the federal funds rate to try to slow economic growth and get inflation under control.

Mortgage rates aren’t directly impacted by changes to the federal funds rate, but they often trend up or down ahead of Fed policy moves. This is because mortgage rates change based on investor demand for mortgage-backed securities, and this demand is often impacted by how investors expect Fed hikes to affect the broader economy. 

As inflation comes down, mortgage rates should, too. But the Fed has indicated that it’s watching for sustained signs of slowing inflation, and it’s not going to lower rates again any time soon.

Written by Molly Grace at Business Insider