Today’s average mortgage rates on Jul. 11, 2024, compared with one week ago. We use rate data collected by Bankrate as reported by lenders across the US.
Mortgage rates constantly change, but there’s a good chance they’ll fall this year. To get the lowest rate, shop around and compare offers from different lenders. Enter your information below to get a custom quote from one of CNET’s partner lenders.
About these rates: Like CNET, Bankrate is owned by Red Ventures. This tool features partner rates from lenders that you can use when comparing multiple mortgage rates.
Refinance rate news
When mortgage rates hit historic lows during the pandemic, there was a refinancing boom, as homeowners were able to nab lower interest rates. But with current average mortgage rates around 7%, getting a new home loan isn’t as financially viable.
Early in the year, hopes were high for a summer rate cut from the Fed. But over the past few months, inflation has remained high and the labor market strong, making it clear to investors that the Fed will take longer than expected to lower rates.
Higher mortgage rates make refinancing less attractive to homeowners, making them more likely to hold onto their existing mortgages.
What to know about 2024 refinance rate trends
“The odds are good that rates will end 2024 lower than they are now,” said Keith Gumbinger, vice president of mortgage site, HSH.com. But predicting exactly where mortgage rates will end up is difficult because it hinges on economic data we don’t yet have.
If inflation continues to improve and the Fed is able to cut rates, mortgage refinance rates could end the year between 6% and 6.5%.
But data showing higher inflation could cause investors to reconsider the likelihood of Fed rate cuts and send mortgage rates higher, according to Orphe Divounguy, senior economist at Zillow Home Loans.
If you’re considering a refinance, remember that you can’t time the economy: Interest rates fluctuate on an hourly, daily and weekly basis, and are influenced by an array of factors. Your best move is to keep an eye on day-to-day rate changes and have a game plan on how to capitalize on a big enough percentage drop, said Matt Graham of Mortgage News Daily.
What to know about refinancing
When you refinance your mortgage, you take out another home loan that pays off your initial mortgage. With a traditional refinance, your new home loan will have a different term and/or interest rate. With a cash-out refinance, you’ll tap into your equity with a new loan that’s bigger than your existing mortgage balance, allowing you to pocket the difference in cash.
Refinancing can be a great financial move if you score a low rate or can pay off your home loan in less time, but consider whether it’s the right choice for you. Reducing your interest rate by 1% or more is an incentive to refinance, allowing you to cut your monthly payment significantly.
How to choose the right refinance type and term
The rates advertised online often require specific conditions for eligibility. Your personal interest rate will be influenced by market conditions as well as your specific credit history, financial profile and application. Having a high credit score, a low credit utilization ratio and a history of consistent and on-time payments will generally help you get the best interest rates.
30-year fixed-rate refinance
For 30-year fixed refinances, the average rate is currently at 6.99%, a decrease of 9 basis points compared to one week ago. (A basis point is equivalent to 0.01%.) A 30-year fixed refinance will typically have lower monthly payments than a 15-year or 10-year refinance, but it will take you longer to pay off and typically cost you more in interest over the long term.
15-year fixed-rate refinance
For 15-year fixed refinances, the average rate is currently at 6.49%, a decrease of 6 basis points compared to one week ago. Though a 15-year fixed refinance will most likely raise your monthly payment compared to a 30-year loan, you’ll save more money over time because you’re paying off your loan quicker. Also, 15-year refinance rates are typically lower than 30-year refinance rates, which will help you save more in the long run.
10-year fixed-rate refinance
For 10-year fixed refinances, the average rate is currently at 6.31%, a decrease of 11 basis points from what we saw the previous week. A 10-year refinance typically has the lowest interest rate but the highest monthly payment of all refinance terms. A 10-year refinance can help you pay off your house much quicker and save on interest, but make sure you can afford the steeper monthly payment.
To get the best refinance rates, make your application as strong as possible by getting your finances in order, using credit responsibly and monitoring your credit regularly. And don’t forget to speak with multiple lenders and shop around.
Does refinancing make sense?
Homeowners usually refinance to save money, but there are other reasons to do so. Here are the most common reasons homeowners refinance:
To get a lower interest rate: If you can secure a rate that’s at least 1% lower than the one on your current mortgage, it could make sense to refinance.
To switch the type of mortgage: If you have an adjustable-rate mortgage and want greater security, you could refinance to a fixed-rate mortgage.
To eliminate mortgage insurance: If you have an FHA loan that requires mortgage insurance, you can refinance to a conventional loan once you have 20% equity.
To change the length of a loan term: Refinancing to a longer loan term could lower your monthly payment. Refinancing to a shorter term will save you interest in the long run.
To tap into your equity through a cash-out refinance: If you replace your mortgage with a larger loan, you can receive the difference in cash to cover a large expense.
To take someone off the mortgage: In case of divorce, you can apply for a new home loan in just your name and use the funds to pay off your existing mortgage.
Today’s average mortgage rates on Jul. 10, 2024, compared with one week ago. We use rate data collected by Bankrate as reported by lenders across the US.
Mortgage rates constantly change, but there’s a good chance they’ll fall this year. To get the lowest rate, shop around and compare offers from different lenders. Enter your information below to get a custom quote from one of CNET’s partner lenders.
About these rates: Like CNET, Bankrate is owned by Red Ventures. This tool features partner rates from lenders that you can use when comparing multiple mortgage rates.
Current refinance rate trends
When mortgage rates hit historic lows during the pandemic, there was a refinancing boom, as homeowners were able to nab lower interest rates. But with current average mortgage rates around 7%, getting a new home loan isn’t as financially viable.
Early in the year, hopes were high for a summer rate cut from the Fed. But over the past few months, inflation has remained high and the labor market strong, making it clear to investors that the Fed will take longer than expected to lower rates.
Higher mortgage rates make refinancing less attractive to homeowners, making them more likely to hold onto their existing mortgages.
Where refinance rates are headed in 2024
“The odds are good that rates will end 2024 lower than they are now,” said Keith Gumbinger, vice president of mortgage site, HSH.com. But predicting exactly where mortgage rates will end up is difficult because it hinges on economic data we don’t yet have.
If inflation continues to improve and the Fed is able to cut rates, mortgage refinance rates could end the year between 6% and 6.5%.
But data showing higher inflation could cause investors to reconsider the likelihood of Fed rate cuts and send mortgage rates higher, according to Orphe Divounguy, senior economist at Zillow Home Loans.
If you’re considering a refinance, remember that you can’t time the economy: Interest rates fluctuate on an hourly, daily and weekly basis, and are influenced by an array of factors. Your best move is to keep an eye on day-to-day rate changes and have a game plan on how to capitalize on a big enough percentage drop, said Matt Graham of Mortgage News Daily.
What does it mean to refinance?
When you refinance your mortgage, you take out another home loan that pays off your initial mortgage. With a traditional refinance, your new home loan will have a different term and/or interest rate. With a cash-out refinance, you’ll tap into your equity with a new loan that’s bigger than your existing mortgage balance, allowing you to pocket the difference in cash.
Refinancing can be a great financial move if you score a low rate or can pay off your home loan in less time, but consider whether it’s the right choice for you. Reducing your interest rate by 1% or more is an incentive to refinance, allowing you to cut your monthly payment significantly.
How to choose the right refinance type and term
The rates advertised online often require specific conditions for eligibility. Your personal interest rate will be influenced by market conditions as well as your specific credit history, financial profile and application. Having a high credit score, a low credit utilization ratio and a history of consistent and on-time payments will generally help you get the best interest rates.
30-year fixed-rate refinance
The average 30-year fixed refinance rate right now is 7.03%, a decrease of 2 basis points over this time last week. (A basis point is equivalent to 0.01%.) A 30-year fixed refinance will typically have lower monthly payments than a 15-year or 10-year refinance, but it will take you longer to pay off and typically cost you more in interest over the long term.
15-year fixed-rate refinance
The current average interest rate for 15-year refinances is 6.59%, a decrease of 7 basis points from what we saw the previous week. Though a 15-year fixed refinance will most likely raise your monthly payment compared to a 30-year loan, you’ll save more money over time because you’re paying off your loan quicker. Also, 15-year refinance rates are typically lower than 30-year refinance rates, which will help you save more in the long run.
10-year fixed-rate refinance
The current average interest rate for a 10-year refinance is 6.43%, a decrease of 25 basis points over last week. A 10-year refinance typically has the lowest interest rate but the highest monthly payment of all refinance terms. A 10-year refinance can help you pay off your house much quicker and save on interest, but make sure you can afford the steeper monthly payment.
To get the best refinance rates, make your application as strong as possible by getting your finances in order, using credit responsibly and monitoring your credit regularly. And don’t forget to speak with multiple lenders and shop around.
When to consider a mortgage refinance
Homeowners usually refinance to save money, but there are other reasons to do so. Here are the most common reasons homeowners refinance:
To get a lower interest rate: If you can secure a rate that’s at least 1% lower than the one on your current mortgage, it could make sense to refinance.
To switch the type of mortgage: If you have an adjustable-rate mortgage and want greater security, you could refinance to a fixed-rate mortgage.
To eliminate mortgage insurance: If you have an FHA loan that requires mortgage insurance, you can refinance to a conventional loan once you have 20% equity.
To change the length of a loan term: Refinancing to a longer loan term could lower your monthly payment. Refinancing to a shorter term will save you interest in the long run.
To tap into your equity through a cash-out refinance: If you replace your mortgage with a larger loan, you can receive the difference in cash to cover a large expense.
To take someone off the mortgage: In case of divorce, you can apply for a new home loan in just your name and use the funds to pay off your existing mortgage.
“Buy now, pay later” plans have become a common option at checkout when shopping in store or online. Some plans, like the pay-in-four option, are appealing since they typically don’t charge interest or require a hard credit check that impacts credit scores.
These plans may seem like another payment method next to debit or credit, but they are installment loans that divide your purchase into several payments, with the first one typically due at checkout. The Consumer Financial Protection Bureau’s latest rule, as of May 2024, further clarifies that buy now, pay later lenders are credit card providers. They must provide some of the same legal protections and rights that apply to credit cards, such as the ability to get a refund after returning a product.
If you qualify for buy now, pay later, it can be easy to become overextended if you take on several plans, so using them frequently as a form of credit may be problematic.
Here’s how to use buy now, pay later the smart way.
Aim to use it strategically
A buy now, pay later plan can make sense to free up cash flow — if you know you’ll have the money to pay it off based on the terms. Review your budget to see whether a buy now, pay later purchase is truly affordable before accepting it. Given that they are loans, avoid reliance on these plans to cover basic necessities if possible. Frequent use of these plans to make ends meet could indicate that you need a financial strategy before an unexpected emergency or setback puts you in the red.
“They can look at their budget in general,” says Trent Graham, a program performance and quality assurance specialist at GreenPath, a nonprofit credit counseling agency. “What’s the cash coming in compared to the cash going out without use of credit? What are options or ideas on cutting back on expenses or increasing the income, one of the two, to balance that budget out?”
If possible, leave space in your budget for unforeseen expenses. Ideally, an emergency fund can cover unexpected costs that may arise to stay on track.
Avoid taking on too many plans at once
Buy now, pay later lenders may not report ongoing payments to major credit bureaus, so they might not have visibility into the number of plans you hold with different companies. As a result, it’s possible to become overextended.
If you do have several buy now, pay later plans open at the same time, keep on top of varying terms and due dates. Graham suggests staying organized with budgeting apps, a notebook, a calendar, or other ways to track and plan for these loans. Choose an option that works for you.
Pay on time
Buy now, pay later plans are a form of credit, but they don’t typically help build it. In some cases, in fact, they can harm your credit. Payment history usually isn’t reported to credit bureaus for buy now, pay later plans at this time, but missing a payment could have adverse ripple effects, depending on the lender.
Paying late can lead to fees or a frozen account that prevents purchases. Eventually, the debt can be charged off and may be turned over to a debt collector. These actions can be reported to credit bureaus and hurt your credit history. If you anticipate trouble paying on time, some lenders may allow changes to payment due dates.
Again, while it’s not recommended to juggle too many buy now, pay later plans at once, staying organized can keep them manageable. Among those who have opened credit cards, personal loans, auto loans, student loans or mortgages, customers who also have buy now, pay later plans were more than twice as likely to be delinquent on at least one of those products by 30 days or longer, according to a 2023 report by the CFPB.
Select your payment method thoughtfully
Some buy now, pay later lenders allow installments to be paid with a debit card, credit card or other options. Whether you’re required to sign up for automatic repayments or you select that option, choose the payment method thoughtfully based on your goals and the purchase amount.
Automatic payments with a debit card, for instance, could lead to overdraft or nonsufficient fund fees if there isn’t enough money to cover the payment. Paying with a credit card can avoid this issue, but if you carry a balance from buy now, pay later plans over several months, you could be paying interest charges. A large purchase could also impact your credit utilization ratio if it uses more than 30% of your available credit. It’s a key factor in credit scores.
Understand the terms
If you’re in a hurry to check out, It may be tempting to accept a buy now, pay later plan without reading the terms of the loan. But doing so could lead to unwanted surprises. The terms aren’t the same for all lenders, and they sometimes aren’t easy to find. Track them down on the lender’s website and read them carefully to know what to expect from the plan, including any potential fees.
We’ve reached the midpoint of 2024. As you reflect on the first six months of the year, you may be wondering how you’re doing financially. Checking up on your credit health is a good starting point.
“People’s insurance rates, the fact that they can get approved for an apartment or even be employed by certain entities is being determined in part by credit scores and their credit reports,” says Michelle Smoley, an accredited financial counselor in Elma, Iowa. “It’s really, really important for people to keep on top of their credit report and their credit scores because they’re used for more than just consumer lending purposes.”
Here’s how to figure out where your credit stands and what you can do to protect it over the next six months.
Inspect your credit reports
Pull your credit reports from the three main credit bureaus: Equifax, Experian and TransUnion. You can use AnnualCreditReport.com to get free copies as often as once per week. Checking your reports yourself doesn’t directly affect your credit score, but it can help shed light on details that may be damaging your credit.
What should you look for? Make sure personal information, such as your name and address, is correct.
“Any errors or unusual information there might be a clue that somebody is trying to steal your identity,” says Bruce McClary, senior vice president of memberships and communications at the National Foundation for Credit Counseling. “It’s a tactic of identity thieves to apply for credit under P.O. boxes or addresses that are not really yours.”
Review the accounts and credit inquiries listed on your reports too. If negative items like bankruptcies or collections appear, make sure they aren’t outdated (most derogatory marks are supposed to fall off credit reports after seven years). Immediately file a dispute with the credit bureaus if you see anything inaccurate or unfamiliar. In many cases if the issue is corrected, “you’ll see a lift in your credit score,” McClary says.
Check your reports throughout the rest of the year — and beyond — for anything fishy. You can also protect yourself by freezing your credit, which blocks access to your reports.
Get score change notifications
See your free score anytime, get notified when it changes, and build it with personalized insights.
Check your credit score
If you’re planning a big purchase, such as a car or home, knowing your credit score and whether you could positively impact it beforehand can help you get approved for credit or for a more favorable interest rate, Smoley says.
You won’t see credit scores on your credit reports, but you can get them elsewhere for free.
“So many people have access to either their FICO score or their VantageScore through their financial institution or their credit card,” Smoley says.
Generally, a score of 690 or higher puts you in a good position. But even if your credit score is strong, it isn’t guaranteed to stay that way. Always be thinking about how to keep your score at that level or grow it so you can qualify for the best possible deal when it comes time to apply for a loan or a line of credit, McClary says.
Knowing the factors that influence credit scores may guide you. Actions like paying your bills on time or becoming an authorized user on a relative’s credit card to expand your credit history can bump up your score.
Make a plan for your debt
Carrying debt can wreak havoc on your credit score because more than half of your score is based on two factors: whether you make payments on time and how much of your credit limit you use.
If you’ve lost track of your debt — maybe it’s been a while since you’ve made a payment on an account or it’s been passed around several debt collection agencies — your credit report can tell you who is managing that account and how much you owe, McClary says.
Once you know what you’re dealing with, set due date reminders and try to make at least the minimum monthly payment on each account. Note that while medical debt may disappear from credit reports early next year, your obligation to pay it won’t.
Making extra payments on credit cards with high balances can help your score too. Keeping your credit utilization ratio below 30% is ideal.
Do your best to save up for purchases you’ll make in the often expensive second half of the year, and pay them off as soon as possible. Summer vacations, back-to-school spending and holiday shopping can put a strain on credit utilization.
If you shop for a mortgage or auto loan, limit applications to a 14-day period to avoid multiple hard pulls from lenders on your credit report, which hurt scores, Smoley says. Credit scoring models generally count all inquiries made within this time frame as a single hard pull.
Keep monitoring your credit health to avoid surprises at the end of the year. “If you don’t know where to start, you can talk to a nonprofit credit counseling agency,” McClary says. “A nonprofit credit counseling agency can work with you, first of all, to understand what you’re seeing on your credit report, and then understand your options for dealing with some of these things. So you don’t have to go through it alone.”
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Today’s average mortgage rates on Jul. 01, 2024, compared with one week ago. We use rate data collected by Bankrate as reported by lenders across the US.
Housing market experts predict mortgage rates will fall in 2024. Get the best rate for your situation by comparing multiple loan offers from different lenders. Receive a custom quote from one of CNET’s partner lenders by entering your information below.
About these rates: Like CNET, Bankrate is owned by Red Ventures. This tool features partner rates from lenders that you can use when comparing multiple mortgage rates.
Today’s refinance rate trends
When mortgage rates hit historic lows during the pandemic, there was a refinancing boom, as homeowners were able to nab lower interest rates. But with current average mortgage rates around 7%, getting a new home loan isn’t as financially viable.
Early in the year, hopes were high for a summer rate cut from the Fed. But over the past few months, inflation has remained high and the labor market strong, making it clear to investors that the Fed will take longer than expected to lower rates.
Higher mortgage rates make refinancing less attractive to homeowners, making them more likely to hold onto their existing mortgages.
Where refinance rates are headed in 2024
“The odds are good that rates will end 2024 lower than they are now,” said Keith Gumbinger, vice president of mortgage site, HSH.com. But predicting exactly where mortgage rates will end up is difficult because it hinges on economic data we don’t yet have.
If inflation continues to improve and the Fed is able to cut rates, mortgage refinance rates could end the year between 6% and 6.5%.
But data showing higher inflation could cause investors to reconsider the likelihood of Fed rate cuts and send mortgage rates higher, according to Orphe Divounguy, senior economist at Zillow Home Loans.
If you’re considering a refinance, remember that you can’t time the economy: Interest rates fluctuate on an hourly, daily and weekly basis, and are influenced by an array of factors. Your best move is to keep an eye on day-to-day rate changes and have a game plan on how to capitalize on a big enough percentage drop, said Matt Graham of Mortgage News Daily.
What does it mean to refinance?
When you refinance your mortgage, you take out another home loan that pays off your initial mortgage. With a traditional refinance, your new home loan will have a different term and/or interest rate. With a cash-out refinance, you’ll tap into your equity with a new loan that’s bigger than your existing mortgage balance, allowing you to pocket the difference in cash.
Refinancing can be a great financial move if you score a low rate or can pay off your home loan in less time, but consider whether it’s the right choice for you. Reducing your interest rate by 1% or more is an incentive to refinance, allowing you to cut your monthly payment significantly.
How to select the right refinance type and term
The rates advertised online often require specific conditions for eligibility. Your personal interest rate will be influenced by market conditions as well as your specific credit history, financial profile and application. Having a high credit score, a low credit utilization ratio and a history of consistent and on-time payments will generally help you get the best interest rates.
30-year fixed-rate refinance
The current average interest rate for a 30-year refinance is 7.00%, an increase of 6 basis points from what we saw one week ago. (A basis point is equivalent to 0.01%.) A 30-year fixed refinance will typically have lower monthly payments than a 15-year or 10-year refinance, but it will take you longer to pay off and typically cost you more in interest over the long term.
15-year fixed-rate refinance
The average rate for a 15-year fixed refinance loan is currently 6.54%, an increase of 10 basis points from what we saw the previous week. Though a 15-year fixed refinance will most likely raise your monthly payment compared to a 30-year loan, you’ll save more money over time because you’re paying off your loan quicker. Also, 15-year refinance rates are typically lower than 30-year refinance rates, which will help you save more in the long run.
10-year fixed-rate refinance
For 10-year fixed refinances, the average rate is currently at 6.58%, an increase of 30 basis points from what we saw the previous week. A 10-year refinance typically has the lowest interest rate but the highest monthly payment of all refinance terms. A 10-year refinance can help you pay off your house much quicker and save on interest, but make sure you can afford the steeper monthly payment.
To get the best refinance rates, make your application as strong as possible by getting your finances in order, using credit responsibly and monitoring your credit regularly. And don’t forget to speak with multiple lenders and shop around.
Does refinancing make sense?
Homeowners usually refinance to save money, but there are other reasons to do so. Here are the most common reasons homeowners refinance:
To get a lower interest rate: If you can secure a rate that’s at least 1% lower than the one on your current mortgage, it could make sense to refinance.
To switch the type of mortgage: If you have an adjustable-rate mortgage and want greater security, you could refinance to a fixed-rate mortgage.
To eliminate mortgage insurance: If you have an FHA loan that requires mortgage insurance, you can refinance to a conventional loan once you have 20% equity.
To change the length of a loan term: Refinancing to a longer loan term could lower your monthly payment. Refinancing to a shorter term will save you interest in the long run.
To tap into your equity through a cash-out refinance: If you replace your mortgage with a larger loan, you can receive the difference in cash to cover a large expense.
To take someone off the mortgage: In case of divorce, you can apply for a new home loan in just your name and use the funds to pay off your existing mortgage.
The minimum credit score required for a conventional loan is 620, while other mortgages require scores between 500 and 700.
A higher credit score usually translates to a lower interest rate.
Paying bills on time, keeping credit card balances and number of accounts low, and becoming an authorized user on another’s account can improve your credit score.
Your credit score is one of the primary factors mortgage lenders consider when you apply for a loan. If your score needs work, there are steps you can take to improve it before you apply. Here’s everything you need to know about how to improve your credit score to buy a house.
Mortgage credit score requirements
The minimum credit score needed to qualify for different types of mortgages ranges.
Type of Loan
Minimum Credit Score
Conventional
620
Jumbo
700
FHA
580 (or 500 with 10 percent down)
VA
620 (VA doesn’t require a minimum credit score, but lenders do)
USDA
640
Still, it’s best to have the highest credit score possible before you apply for a mortgage. In fact, the average credit score for a borrower getting a purchase loan is 738, according to Optimal Blue’s May 2024 Market Advantage report.
How to improve your credit score before getting a mortgage
Check your credit reports and scores
Pay all your bills on time
Reduce your credit card balances
Avoid opening new accounts
Get help from a responsible credit user
1. Check your credit reports and scores
Get a copy of your credit report from each major credit bureau (Equifax, Experian and TransUnion) through AnnualCreditReport.com. Aside from reviewing your scores, make sure there are no mistakes, especially regarding late payments or closed accounts. If there is an error, contact the bureau to dispute it as soon as possible.
2. Pay all your bills on time
To improve your credit score for a mortgage, keep all your accounts in good standing. Missing a payment can lower your credit score, and late payments can stay on your report for up to seven years. If you’re currently late on a payment but still within the grace period, contact the creditor right away to see if you can get things back on track (and the late charge erased). If you do have a late payment on your record, strive to make payments on-time moving forward.
3. Reduce your credit card balances
Your credit utilization ratio is the amount you owe against your total available credit, and it accounts for 30 percent of your score. The lower the ratio, the better. As a rule of thumb, if your utilization is over 30 percent, work to pay down those balances so you’re under that threshold.
4. Avoid opening new accounts
Applying for new credit will affect your score. If you can, avoid opening new credit card accounts or taking out more loans before you apply for a mortgage. Follow this tip during the application and mortgage underwriting process as well. By the same token, don’t close any old accounts, either — this can raise your utilization ratio and have a negative effect on your score.
5. Get help from a responsible credit user
If you’re a younger first-time buyer, you might not have a very long credit history. One way to improve credit to buy a house: Become an authorized user on a parent’s or relative’s credit card. The primary cardholder (your parent or relative) will continue to make the payments, but you’ll benefit from the positive payment history.
What factors determine your FICO credit score?
There are several categories of your credit history that inform your current score. Some things affect your score more than others. According to Equifax, one of the major credit bureaus, your FICO score is determined using a formula that roughly looks like this:
On-time payment history: 35 percent
Amount of debt: 30 percent
Length of total credit history: 15 percent
Number of new accounts: 10 percent
Type of credit utilized: 10 percent
The national average FICO score as of October 2023 is 717, down one point from July 2023, according to FICO.
Credit bureaus tend to assign “good debt” and “bad debt” labels to your current debt. Home loans and other debt that can increase your financial worth in the long term are considered good. Credit card debt and other revolving accounts that don’t go toward a valuable asset are more likely to decrease your FICO score.
Why is a higher credit score beneficial when applying for a mortgage?
The higher your credit score, the better chance you’ll have of being approved for a mortgage. This is because lenders want to ensure you’ll repay the owed amount, and your credit score is one factor they look at to determine your risk level. A higher credit score will usually get you a lower mortgage rate.
Even a small difference in the mortgage rate you get affects your monthly payment and overall loan cost. For example, using Bankrate’s mortgage calculator, let’s say you buy a $300,000 house with a 6.875 percent fixed rate and put 3 percent down. Your monthly payment would be about $2,176. If you had a 7 percent fixed rate, your monthly payment would be $2,200. While the difference looks small at first, over the course of a 30-year mortgage, you’d save over $8,000.
Next steps in the mortgage process
Improving your credit and saving for a down payment are two of the biggest steps in getting ready to buy a home. Next, you’ll need to:
Get your financial paperwork together.
Shop around for a loan.
Get preapproved.
Have an offer accepted on a house.
Go through the underwriting process.
Close on the home.
To get the full details on the mortgage process, read our guide on how to get a mortgage.
FAQ
Items like a missed payment or bankruptcy will stay on your credit report for up to seven years, but the impact decreases after a few years. If you want to improve your credit score fast, pay down your current debt and avoid opening new accounts. Ideally, you want your credit utilization ratio to be 30 percent or less. If you can increase your credit limits on card accounts, that can help within a month or so, too — it improves the credit utilization ratio from the opposite end.
It’s still possible to get a mortgage with bad credit or less-than-ideal credit. However, the lower your score, the harder it will be to secure a mortgage. For instance, you may be able to get an FHA loan with a credit score as low as 500, but you’ll need to put 10 percent down. If you can get your score up to 580, you can get an FHA mortgage with 3.5 percent down. Know also that some lenders have stricter requirements, so it’s smart to compare lenders who specialize in low-credit-score mortgages.
Today’s average mortgage rates on Jun. 24, 2024, compared with one week ago. We use rate data collected by Bankrate as reported by lenders across the US.
Lower mortgage rates make buying a home more affordable. Experts recommend shopping around with different mortgage lenders to find the best deal. Enter your information below to get a custom quote from one of CNET’s partner lenders.
About these rates: Like CNET, Bankrate is owned by Red Ventures. This tool features partner rates from lenders that you can use when comparing multiple mortgage rates.
Refinance rate news
When mortgage rates hit historic lows during the pandemic, there was a refinancing boom, as homeowners were able to nab lower interest rates. But with current average mortgage rates around 7%, getting a new home loan isn’t as financially viable.
Early in the year, hopes were high for a summer rate cut from the Fed. But over the past few months, inflation has remained high and the labor market strong, making it clear to investors that the Fed will take longer than expected to lower rates.
Higher mortgage rates make refinancing less attractive to homeowners, making them more likely to hold onto their existing mortgages.
What to expect from refinance rates this year
“The odds are good that rates will end 2024 lower than they are now,” said Keith Gumbinger, vice president of mortgage site, HSH.com. But predicting exactly where mortgage rates will end up is difficult because it hinges on economic data we don’t yet have.
If inflation continues to improve and the Fed is able to cut rates, mortgage refinance rates could end the year between 6% and 6.5%.
But data showing higher inflation could cause investors to reconsider the likelihood of Fed rate cuts and send mortgage rates higher, according to Orphe Divounguy, senior economist at Zillow Home Loans.
If you’re considering a refinance, remember that you can’t time the economy: Interest rates fluctuate on an hourly, daily and weekly basis, and are influenced by an array of factors. Your best move is to keep an eye on day-to-day rate changes and have a game plan on how to capitalize on a big enough percentage drop, said Matt Graham of Mortgage News Daily.
What to know about refinancing
When you refinance your mortgage, you take out another home loan that pays off your initial mortgage. With a traditional refinance, your new home loan will have a different term and/or interest rate. With a cash-out refinance, you’ll tap into your equity with a new loan that’s bigger than your existing mortgage balance, allowing you to pocket the difference in cash.
Refinancing can be a great financial move if you score a low rate or can pay off your home loan in less time, but consider whether it’s the right choice for you. Reducing your interest rate by 1% or more is an incentive to refinance, allowing you to cut your monthly payment significantly.
How to find the best refinance rates
The rates advertised online often require specific conditions for eligibility. Your personal interest rate will be influenced by market conditions as well as your specific credit history, financial profile and application. Having a high credit score, a low credit utilization ratio and a history of consistent and on-time payments will generally help you get the best interest rates.
30-year fixed-rate refinance
The average rate for a 30-year fixed refinance loan is currently 6.94%, a decrease of 7 basis points from what we saw one week ago. (A basis point is equivalent to 0.01%.) A 30-year fixed refinance will typically have lower monthly payments than a 15-year or 10-year refinance, but it will take you longer to pay off and typically cost you more in interest over the long term.
15-year fixed-rate refinance
The average 15-year fixed refinance rate right now is 6.43%, a decrease of 7 basis points compared to one week ago. Though a 15-year fixed refinance will most likely raise your monthly payment compared to a 30-year loan, you’ll save more money over time because you’re paying off your loan quicker. Also, 15-year refinance rates are typically lower than 30-year refinance rates, which will help you save more in the long run.
10-year fixed-rate refinance
The average rate for a 10-year fixed refinance loan is currently 6.28%, a decrease of 14 basis points from what we saw the previous week. A 10-year refinance typically has the lowest interest rate but the highest monthly payment of all refinance terms. A 10-year refinance can help you pay off your house much quicker and save on interest, but make sure you can afford the steeper monthly payment.
To get the best refinance rates, make your application as strong as possible by getting your finances in order, using credit responsibly and monitoring your credit regularly. And don’t forget to speak with multiple lenders and shop around.
Reasons you might refinance your home
Homeowners usually refinance to save money, but there are other reasons to do so. Here are the most common reasons homeowners refinance:
To get a lower interest rate: If you can secure a rate that’s at least 1% lower than the one on your current mortgage, it could make sense to refinance.
To switch the type of mortgage: If you have an adjustable-rate mortgage and want greater security, you could refinance to a fixed-rate mortgage.
To eliminate mortgage insurance: If you have an FHA loan that requires mortgage insurance, you can refinance to a conventional loan once you have 20% equity.
To change the length of a loan term: Refinancing to a longer loan term could lower your monthly payment. Refinancing to a shorter term will save you interest in the long run.
To tap into your equity through a cash-out refinance: If you replace your mortgage with a larger loan, you can receive the difference in cash to cover a large expense.
To take someone off the mortgage: In case of divorce, you can apply for a new home loan in just your name and use the funds to pay off your existing mortgage.
Refinancing a mortgage is a decision that can have a significant impact on your financial journey. It’s a process where you replace your existing mortgage with a new one, often with different terms and interest rates.
This move can potentially save you money, adjust your payment schedule, or allow you to tap into your home’s equity. However, it’s not a decision to be taken lightly. Refinancing comes with its own set of closing costs and considerations that need careful evaluation.
In this article, we’ll dive deep into the world of mortgage refinancing. We’ll explore the reasons why refinancing might be a good idea, the different types of refinancing options available, and, importantly, the closing costs associated with the process.
Whether you’re looking to lower your monthly payment, change your mortgage type, or access some cash, it’s essential to understand the nuts and bolts of refinancing. We aim to provide you with the knowledge and tools needed to make an informed decision about whether refinancing your mortgage aligns with your financial goals.
Why refinance a mortgage?
Homeowners might consider refinancing their mortgage for various compelling reasons. Each situation is unique, but there are a few common motivators that lead many to explore the refinancing path. Understanding these reasons can help you assess whether refinancing aligns with your financial objectives.
Lower interest rates: Perhaps the most straightforward reason to refinance is to take advantage of lower interest rates. When interest rates drop, refinancing can lead to significant savings, both in terms of monthly payments and the total interest paid over the life of the loan.
Switch from ARM to fixed-rate mortgage: If you currently have an Adjustable-Rate Mortgage (ARM), you might face uncertainty regarding future payment amounts. Refinancing to a Fixed-Rate Mortgage locks in a consistent interest rate, bringing stability and predictability to your payments.
Cashing out equity: For homeowners who have built up substantial equity in their homes, a cash-out refinance can be a way to access that capital. This option allows you to borrow more than what you owe on your current mortgage and use the difference for other financial needs, such as home improvements, debt consolidation, or education expenses.
Altering loan terms: Some homeowners might refinance to change the terms of their loan. Whether it’s extending the loan duration to lower monthly payments or shortening it to pay off the mortgage faster, refinancing can adjust the loan to better fit current financial situations and goals.
Debt consolidation: Refinancing can also be a strategic move to consolidate debt. By rolling high-interest debts into a mortgage with a lower rate, you can simplify your finances and potentially reduce overall monthly expenses.
Eliminating private mortgage insurance (PMI): If your home value has increased, refinancing might allow you to drop PMI, which is typically required when your down payment is less than 20% of the home’s value. This can lead to substantial savings over time.
Each of these reasons reflects a different financial need or goal. Refinancing a mortgage can be a powerful tool, but it’s essential to weigh the benefits against the costs and long-term implications. The right choice depends on your personal circumstances and financial objectives.
Types of Refinancing Options
Refinancing your mortgage isn’t a one-size-fits-all solution. There are several types of refinancing options available, each with its own set of features, benefits, and drawbacks. Understanding these can help you determine which option best suits your financial needs and goals.
Cash-Out Refinance
A cash-out refinance allows you to replace your existing mortgage with a new loan for more than you owe on your home. The difference is paid to you in cash, which can be used for various purposes like home renovations, debt consolidation, or other financial needs.
Pros:
Access to cash for large expenses.
Potential to secure a lower interest rate than your current mortgage.
Consolidates debt into a single payment, often at a lower rate.
Cons:
Increases the amount you owe, potentially extending the time to pay off your mortgage.
Can lead to higher interest costs over the life of the loan.
Requires sufficient home equity to qualify.
Home Equity Line of Credit (HELOC)
A HELOC is a revolving line of credit that lets you borrow against the equity in your home. It works similarly to a credit card, where you can draw funds as needed and pay them back over time.
Pros:
Flexible access to funds; borrow as much or as little as needed.
Only pay interest on the amount you draw.
Can be a lower-cost option for accessing home equity.
Cons:
Variable interest rates can increase over time.
Temptation to overspend due to easy access to funds.
Could put your home at risk if you cannot repay the borrowed amount.
ARM to Fixed-Rate Mortgage Refinance
This type of refinancing involves switching from an adjustable-rate mortgage (ARM) to a fixed-rate mortgage. It offers a stable interest rate and a predictable monthly mortgage payment for the life of the loan.
Pros:
Stability and predictability in monthly payments.
Protection against rising interest rates in the future.
Easier budgeting and financial planning.
Cons:
May come with a higher interest rate than the initial rate of an ARM.
Closing costs and refinance fees.
Fixed-rate might be higher than current ARM rates if interest rates are rising.
Each refinancing option serves different financial scenarios and objectives. So, analyze your financial situation, consider the long-term implications, and perhaps talk to a financial advisor to choose the most appropriate path for your needs.
Understanding Mortgage Refinance Closing Costs
When considering refinancing your mortgage, be aware of the various fees and costs involved. Each of these costs plays a role in the overall financial equation of refinancing, and they can vary significantly based on your lender, loan terms, and even geographic location.
As a general rule of thumb, expect to pay around 2% – 6% of your loan balance in closing costs. This percentage can give you a ballpark figure to start with when estimating the expenses involved in your refinancing process.
Application Fee
This is a charge by the lender for processing your new mortgage application. It generally ranges from $75 to $300 and covers the cost of credit checks and administrative expenses.
Loan Origination Fee
Often the most significant cost, the origination fee, is charged by the lender for evaluating and preparing your mortgage loan. It’s typically calculated as a percentage of the loan amount (ranging from 0% to 1.5%). This fee can vary greatly among lenders, so it’s wise to compare offers.
Points
Points, also known as discount points, are optional fees paid at closing to reduce your interest rate. Each point is typically equal to 1% of the loan amount. While this can save you money over the life of the loan, it increases your upfront costs.
Appraisal Fee
This fee, ranging from $300 to $700, pays for a professional appraisal of your home to assess its current value. Lenders require this to ensure the loan amount is not more than the home’s worth.
Inspection Fee
Ranging between $175 to $350, this fee covers the cost of a professional inspection of the property to identify any structural or mechanical issues.
Attorney Review/Closing Fee
This fee, usually between $500 to $1,000, is for the services of an attorney or a title company during the closing process to ensure all legal documents are correct and in order.
Homeowner’s Insurance
If you’re not already insured, or if additional coverage is needed, this cost can range from $300 to $1,000. It ensures the property is insured before the lender approves the refinancing.
FHA, VA, or Private Mortgage Insurance Fees
For certain loan types, like FHA or VA loans, there are specific fees or insurance premiums. For example, FHA loans include a 1.5% upfront fee and a yearly premium. VA loans have a funding fee that varies based on the loan type and down payment.
Title Search and Title Insurance
Costing between $700 to $900, this covers the title search and insurance, ensuring there are no liens or problems with the ownership of the property.
Survey Fee
If required, this fee ranges from $150 to $400 and pays for a survey to confirm the property’s boundaries and structure.
Prepayment Penalty
Not all loans have this, but some might charge a prepayment penalty for paying off your current mortgage early. This could range from one to six months of interest payments.
Each of these fees contributes to the total cost of refinancing your mortgage. To get a clear picture of how much refinancing will cost you, it’s important to obtain detailed estimates from potential lenders and consider how these costs weigh against the potential savings or benefits of refinancing.
State and Lender Variability in Closing Costs
The closing costs associated with refinancing a mortgage can vary significantly depending on your location (state) and the lender you choose. This variability is influenced by local regulations, market conditions, and individual lender practices.
By state: Different states have varying regulations and fees, which can affect the overall closing costs. For instance, states with higher real estate values or specific local taxes and fees might have higher refinancing costs.
By lender: Lenders have different pricing models. Some may offer lower interest rates but charge higher closing costs, while others might have higher rates but lower upfront fees or offer to waive certain charges.
Real-Life Examples and Case Studies
To better understand the impact of refinancing, let’s explore a few real-life scenarios. These examples will highlight how different refinancing options can play out financially.
Scenario 1: Lowering Interest Rates
John and Sarah’s Story:
Original mortgage: $200,000 at 5% interest, 30-year term.
Refinanced mortgage: $200,000 at 3.5% interest, 30-year term.
Outcome: By refinancing to a lower interest rate, they reduced their monthly payment and will save $55,000 in interest over the life of the loan.
Scenario 2: Switching from ARM to Fixed-Rate
The Smiths’ Experience:
Original mortgage: $250,000 5/1 ARM starting at 3%.
Refinanced mortgage: $250,000 30-year fixed at 4%.
Outcome: Although they faced a higher interest rate initially, the Smiths secured predictable monthly payments, protecting them from potential rate increases in the future.
Scenario 3: Cashing Out Equity for Home Improvements
Alex’s Decision:
Original mortgage: $150,000 remaining on a home valued at $300,000.
Refinanced mortgage: $200,000 with cash-out of $50,000.
Use of funds: Alex used the $50,000 to renovate the kitchen and bathrooms, increasing the home’s value.
These examples illustrate how refinancing can serve different needs, from reducing payments to accessing equity. The right choice depends on personal financial situations and long-term goals.
The Impact of Credit Score on a Mortgage Refinance
Your credit score plays a major role in refinancing. It affects not only your ability to qualify for refinancing, but also the interest rates you’ll be offered.
How Credit Scores Affect Refinancing:
Higher scores, lower rates: The higher your credit score, the lower the interest rates lenders are likely to offer. A strong credit score signals lower risk to lenders.
Qualification thresholds: Some refinancing options have minimum credit score requirements. Falling below these can limit your options or result in higher interest rates.
Tips for Improving Credit Scores Before Refinancing:
Check your credit report: Obtain a free report from each of the three major credit bureaus (Equifax, Experian, and TransUnion) to check for errors or inaccuracies.
Pay down debts: Lowering your overall debt can improve your credit utilization ratio, a key factor in credit scores.
Make timely payments: Ensure all your bills and existing loan payments are up-to-date. Late payments can significantly harm your credit score.
Limit new credit applications: Each new application can cause a small, temporary dip in your credit score.
Address delinquencies: If you have any delinquencies or collections, try to resolve them. These have a major negative impact on your score.
By understanding and improving your credit score, you can position yourself for better refinancing options and terms. Remember, refinancing is a tool that, when used wisely, can align with and enhance your financial strategy.
The Refinancing Process
Refinancing a mortgage involves several steps. Here’s a general outline of the process:
Assess your financial situation: Start by reviewing your current mortgage, home equity, credit score, and overall financial goals to determine if refinancing is a beneficial move for you.
Gather necessary documents: Prepare important documents such as recent pay stubs, tax returns, bank statements, and details of your current mortgage.
Shop around for lenders: Research various lenders to compare interest rates, fees, and terms. Don’t limit your search to just your current lender; consider banks, credit unions, and online lenders.
Get a credit check: Lenders will review your credit history and score. Remember, your credit score can significantly impact the interest rate offered.
Apply for refinancing: Once you’ve chosen a lender, complete their application process. This will typically involve submitting your financial documents and possibly paying an application fee.
Lock in your interest rate: When you receive a favorable interest rate, consider locking it in to protect against market fluctuations during the processing of your refinance.
Home appraisal: Most lenders will require a home appraisal to determine the current value of your property.
Underwriting: The lender will review your application, financial documents, and home appraisal to make a final decision on your loan approval.
Closing: If approved, you’ll proceed to closing, where you’ll sign the new mortgage agreement. This will involve paying closing costs and any other fees.
Settle old mortgage: Your new lender will use the funds from the refinance to pay off your existing mortgage.
Begin new mortgage payments: Once the refinance is complete, you’ll start making payments on your new mortgage according to the agreed terms.
Remember, the refinancing process can vary in length and complexity based on individual circumstances and the lender’s requirements. It’s important to ask questions and understand each step to make informed decisions throughout the process.
Conclusion
The decision to refinance your mortgage is significant and multifaceted. It’s essential to weigh the potential benefits, such as lower interest rates or altered loan terms, against the costs and implications that come with refinancing. Each homeowner’s situation is unique, and what may be advantageous for one may not be the best choice for another.
Understanding the impact of your credit score on refinancing options, the variability in closing costs by state and lender, and the specific steps involved in the refinancing process are key to making the right decision. Remember, refinancing is more than just securing a lower interest rate; it’s about aligning the decision with your overall financial goals and long-term plans.
Before taking the leap, consider all these factors carefully. Consulting with financial advisors or mortgage specialists can provide additional clarity and guidance tailored to your personal circumstances. Refinancing can be a powerful financial move when done for the right reasons and under the right conditions, but you must take the time to fully understand and prepare.
The stock market is often seen as a distant entity, a realm of high finance reserved for Wall Street professionals. Yet, for the average American, the rise and fall of stock prices can significantly impact their personal credit score. This article explores the complex interplay between the stock market, consumer behavior, and creditworthiness in the current economic climate.
The Indirect Link: Investor Psychology and Spending Habits
While directly investing in the stock market doesn’t typically influence your credit report, it can indirectly affect your credit score through your spending habits. A strong bull market, where stock prices are consistently rising, can lead to a phenomenon known as the “wealth effect.” Consumers feeling more confident about their overall financial well-being may be more likely to increase spending, potentially resorting to credit cards to finance larger purchases or a more lavish lifestyle. This increased reliance on credit can negatively impact your credit score in two ways:
Credit Utilization Ratio: This crucial factor in your credit score measures the amount of credit you use compared to your total credit limit. Your utilization ratio rises as your credit card balances increase, potentially dragging down your score.
Debt-to-Income Ratio: This metric compares your total debt obligations, including credit card debt, to your gross income. Higher spending fueled by a strong market can lead to a higher debt-to-income ratio, another negative factor for credit scores.
Conversely, a bear market, where stock prices consistently fall, can have the opposite effect. Feeling more cautious about their financial security, consumers may tighten their belts and reduce spending. This could lead to lower credit card balances and a more conservative approach to debt, potentially boosting credit scores.
The Margin Account Conundrum
Using margin accounts is one exception to the general rule of stock market investments that do not affect your credit score. These accounts allow investors to borrow money from their brokerage firm to purchase securities. While offering the potential for amplified gains, margin accounts also have amplified risks. The borrowed money is reflected as a debt on your credit report, impacting your credit utilization ratio.
Furthermore, suppose the value of the purchased securities falls below a certain threshold. In that case, you may receive a margin call, forcing you to sell some of your holdings or deposit additional cash to cover the debt. Failure to meet a margin call can result in your broker selling your assets at a potentially significant loss, further damaging your credit score.
The Middle-Class Squeeze: Inflation, Interest Rates, and Credit
The current economic climate in the United States adds another layer of complexity to the relationship between the stock market and personal credit. Rising inflation erodes purchasing power, making it more difficult for middle-class families to make ends meet. Coupled with rising interest rates on credit cards and loans, the temptation to overextend credit lines becomes even greater. This can lead to a vicious cycle of increasing debt and declining credit scores, making qualifying for future loans at favorable rates harder.
Navigating the Maze: Strategies for a Strong Credit Score
Despite the indirect influence of the stock market, there are steps you can take to maintain a healthy credit score:
Develop a Budget and Stick to It: Track your income and expenses to create a realistic spending plan. Allocate savings and debt repayment funds, leaving room for discretionary spending but avoiding overreliance on credit.
Maintain Low Credit Card Balances: Aim to maintain a credit utilization ratio below 30% – the lower, the better. Consider paying off your credit card balances monthly to avoid accruing interest charges.
Explore Credit-Building Tools: If you have a limited credit history, explore options like secured credit cards or responsible use of store credit cards to build a positive credit profile.
Monitor Your Credit Reports Regularly: Check your credit reports from all three major bureaus (Experian, Equifax, and TransUnion) for errors or discrepancies. Dispute any inaccuracies promptly to maintain accurate credit information.
Conclusion
The stock market may not directly control your credit score, but its influence on consumer confidence and spending habits can have a significant indirect impact. Understanding this connection and prioritizing responsible financial habits can help you navigate the complex economic landscape and maintain a healthy credit score – a crucial factor in securing loans, renting apartments, and achieving your financial goals.
Mortgage rates aren’t budging, and neither is the Federal Reserve… yet.
The Fed’s governing body, the Federal Open Market Committee, is meeting today and tomorrow (June 11-12) to decide whether to make any adjustments to its benchmark interest rate. But experts say the FOMC isn’t likely to break from its holding pattern.
Until inflation cools enough for the Fed to start cutting rates, homebuyers shouldn’t expect mortgage affordability to improve much. However, if inflation continues to decelerate and the Fed is able to make even one rate cut down the road, we may see some modest improvements in mortgage rates by the end of the year, according to Odeta Kushi, deputy chief economist at First American Financial Corporation.
That’s a big “if.”
On Wednesday, we’ll receive an updated Summary of Economic Projections, which could offer clues as to the direction of mortgage rates over the next several months.
“In the SEP, we’ll learn if Fed members still expect to be cutting rates this year or not, and get a sense of where they believe economic growth, unemployment and inflation will be headed for the remainder of 2024 and beyond,” said Keith Gumbinger, vice president of mortgage site HSH.com.
High mortgage rates have made buying a house prohibitively expensive. I spoke with several housing market experts about their expectations for Fed rate cuts and when we might see lower mortgage rates in 2024.
Why is the Fed holding off on rate cuts?
Since progress on inflation has been slow and the labor market remains strong, the Fed has reason to hold off on lowering rates for another month, if not more.
It’s a delicate balancing act. The Fed wants to see unemployment levels increase just enough to bring inflation down, but not so much that we fall into a recession. The Fed also wants to avoid cutting interest rates too soon, only to have inflation rear its head again. By holding interest rates steady, the Fed can continue to assess the overall economy.
“The Fed won’t cut rates until they have good reason to do so,” said Alex Thomas, senior research analyst at John Burns Research and Consulting.
The Fed doesn’t directly set mortgage rates. However, its policy changes, as well as investors’ expectations for future policy changes, influence whether rates on home loans move up or down.
What do inflation and labor market data have to do with interest rates?
The FOMC will be closely monitoring the Consumer Price Index for May, released Wednesday before its meeting concludes. The central bank wants to see inflation move closer to its target annual rate of 2%. The Personal Consumer Expenditures Price Index (the Fed’s preferred measure of inflation) showed prices growing at an annual rate of 2.7% in April.
The other big metric the Fed cares about is employment. Last week’s labor report showed the unemployment rate reaching 4% for the first time since January 2022, with the US adding 272,000 jobs in May, well above investors’ expectations. Another large increase in jobs indicates a still-growing economy, giving the Fed a reason to wait longer before cutting rates.
Economic data, like last week’s labor report and this week’s CPI numbers, may change expectations about the future of rate cuts this year, causing mortgage rates to dip down even before the rate cuts actually happen.
“If the labor data gets weaker, it doesn’t matter what the Fed does; mortgage rates will go lower,” said Logan Mohtashami, lead analyst at HousingWire.
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When will the Fed start lowering interest rates?
The central bank may make its first cut in July, but that will only happen “if the labor market report is weak and inflation comes down significantly,” said Lisa Sturtevant, chief economist at Bright MLS.
A more likely scenario is for the Fed to cut rates in the fall or early winter.
“If the cuts happen, they will happen toward the end of the year,” said Mohtashami. He believes we’ll see only one or two cuts, as opposed to the three cuts previously penciled into the Fed’s outlook.
Another factor to consider is the general election in November.
“Typically, the Fed refrains from making monetary policy decisions too close to a presidential election, to avoid the prescription of influencing the outcome,” said Sturtevant. “If the Fed does not cut rates in July, it is possible there will not be any rate cuts until 2025.”
Where are mortgage rates going this year?
In December of last year, after the Fed indicated it was prepared to lower interest rates in 2024, mortgage rates moved down into the mid-6% range. Some early-year forecasts optimistically called for rates to fall below 6% by the end of 2024.
But then mortgage rates started to climb back up. Since mid-February, the average rate for a 30-year fixed mortgage has held above 7%.
Experts still anticipate that mortgage rates will moderate in the coming months, landing between 6% and 6.5% by the end of the year. But if new economic data shows higher inflation, investors may adjust their forecast for rate cuts, causing Treasury yields and mortgage rates to surge, said Orphe Divounguy, senior macroeconomist at Zillow Home Loans. His baseline forecast calls for rates to fluctuate between 6% and 7% throughout the rest of 2024.
It’s also important to note that the Fed won’t cut rates all at once. Instead, it will be a gradual process over the next few years, meaning it may take a while before we see mortgage rates drop below 6%.
The bottom line? “Rates are going to remain higher than we had been predicting last year,” said Sturtevant.
When will affordability improve for homebuyers?
Today’s unaffordable housing market isn’t due to just high mortgage rates. Homebuyers are also being pinched by elevated home prices, limited housing supply and the pain of high inflation. Unfortunately, there’s no quick fix to all of these problems. But baby steps are better than no steps at all.
“Frustrating for some as it may be, it’s better that conditions continue to align slowly,” said Gumbinger.
For example, a rapid decline in mortgage rates would only spur more homebuying demand. Without the supply to support that demand, lofty home prices could press even higher, according to Gumbinger.
As mortgage rates gradually fall in the coming years, we should see more homeowners come off the sidelines and sell their houses. But most sellers are also buyers, so that won’t repair today’s housing shortage entirely.
Divounguy said the key to long-term affordability lies in boosting residential construction via land-use and zoning reforms. We’ve already witnessed how new construction is proving to be a bright spot in today’s difficult housing market: To lower the barrier-to-entry for homebuyers, many builders are offering sales incentives like discounted prices, closing-cost assistance and mortgage-rate buydowns.
If you don’t live in an area where there’s a lot of new construction (or you’d prefer to purchase an existing home), there are things you can do to make buying a house more accessible:
Build your credit score: Mortgage lenders reward borrowers with excellent credit scores with lower mortgage rates, which can affect your monthly payments. Paying your credit card bill on time and in full, and lowering your credit utilization ratio can help improve your score over time.
Save for a bigger down payment: With a larger down payment, you can take out a smaller mortgage, which will save you interest over the life of your loan. Depending on your timeline for buying a home, consider stowing your money in a high-yield savings account or certificate of deposit to take advantage of higher returns.
Explore first-time homebuyer programs: First-time homebuyer programs can offer assistance with your down payment, closing costs and more. Also consider government-backed loans, such as FHA loans, USDA loans and VA loans, which often have lower credit score and down payment requirements than most conventional loans.