Mortgage Rates Fall Below 6.5%—What It Means for You

It’s likely that you’ve heard that Mortgage Rates have been declining recently, whether you’re considering refinancing your mortgage or purchasing a property. Many are asking what this means for them, as mortgage rates are at a 16-month low as of September 2024. We’ll explain the present state of mortgage rates, their significance, and how they may affect your aspirations to become homeowners in this post.

What Are Mortgage Rates?

Before we dive into the current trends, let’s start with the basics. A mortgage rate is simply the interest rate you pay on your home loan. When you borrow money to buy a house, you’ll repay the loan over a set period, usually 15 or 30 years, and the mortgage rate determines how much extra you’ll have to pay in interest over the life of the loan.

Current Mortgage Rates: A Snapshot

As of September 4, 2024, the average rate for a 30-year fixed mortgage in the U.S. is 6.47%. To put that in perspective, this is the lowest rate we’ve seen since April 2023. Here’s a quick look at how mortgage rates are trending:

• 30-year fixed mortgage rate: 6.47%
• 15-year fixed mortgage rate: 5.73%
• 30-year jumbo mortgage rate: 6.64%

These numbers are important because the lower the rate, the less you’ll pay in interest over time. For example, if you’re looking to buy a home with a 30-year mortgage, locking in a lower rate could save you thousands of dollars over the life of the loan.

Why Are Mortgage Rates Dropping?

You might be wondering: why are mortgage rates going down? The short answer is that it’s tied to what the Federal Reserve is doing. The Fed plays a key role in influencing mortgage rates because it controls short-term interest rates. Since the COVID-19 pandemic, the Fed has made several moves to adjust rates, and now, there are signs that they might cut rates again for the first time since the pandemic.

When the Fed lowers interest rates, it usually leads to a drop in mortgage rates as well. This is good news for potential home buyers and anyone looking to refinance their mortgage, as lower rates make it cheaper to borrow money.

Mortgage Rates in Major Cities

While the national average is 6.47%, rates can vary depending on where you live. In fact, mortgage rates in some major metro areas are even lower. In seven of the ten largest metro areas in the U.S., the average 30-year fixed mortgage rate is below 6.5%. This means that if you live in one of these areas, you might be able to lock in an even better deal on your mortgage.

Understanding Mortgage Points

When you’re shopping for a mortgage, you might hear about “points.” Points are fees that you pay to the lender upfront to either reduce your mortgage rate or cover the cost of processing the loan. There are two types of points to know about:

1. Discount Points: These help you lower your mortgage rate by paying some money upfront. The more points you buy, the lower your rate will be.
2. Origination Points: These are fees that cover the cost of creating and processing your mortgage. These are usually one-time fees.

In the latest survey, the average 30-year fixed mortgage had 0.28 points. If you’re considering buying a home, it’s important to talk to your lender about whether buying points is worth it for you.

How Does This Impact Your Monthly Payment?

Now, let’s talk about what really matters—how much you’ll actually be paying each month if you get a mortgage at today’s rates.

For a 30-year fixed mortgage with the current rate of 6.47%, the typical monthly payment would be around $2,130. This assumes a 20% down payment on the average home, which currently costs about $422,600, according to the National Association of Realtors.

This payment accounts for about 26% of the median household income, which is $97,800 per year. While rates have fallen, it’s still clear that affordability remains a big challenge for many buyers. Home prices have stayed high, and even with lower mortgage rates, buying a home is still a significant financial commitment.

Are Lower Mortgage Rates Enough to Bring Buyers Back?

Even though mortgage rates have dipped, it doesn’t necessarily mean that more people are rushing to buy homes. According to Lisa Sturtevant, Chief Economist at Bright MLS, a major listing service, “even the decline in rates has not been enough to bring buyers back into the market.”

Why? Well, it’s partly because homes are still really expensive. The national median price for an existing home is sitting at $422,600—a record high. So even with a lower mortgage rate, many people still find it hard to afford the down payment and monthly payments.

Should You Lock In a Mortgage Rate Now?

If you’re thinking about buying a home or refinancing, you might be wondering if now is the right time to lock in a mortgage rate. While no one can predict exactly where rates will go, the general consensus is that we might see rates drop even further, especially if the Fed cuts interest rates again.

That said, if you find a rate that works for you and fits your budget, it might make sense to lock it in now rather than waiting and hoping for lower rates. Mortgage rates can be unpredictable, and waiting too long could mean missing out on a good deal.

Conclusion

Mortgage rates are at a 16-month low, and while this is good news for homebuyers, it doesn’t necessarily mean that homes are more affordable. Prices are still high, and affordability remains a challenge for many. However, if you’re in a position to buy or refinance, now might be a good time to take advantage of the lower rates and save some money over the life of your loan.

So, is it time for you to start house hunting or refinancing? Only you can decide based on your financial situation. But one thing’s for sure: keeping an eye on mortgage rates can help you make a smarter decision when it comes to buying your dream home.

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