With mortgage rates dropping over a percentage point from late 2023 levels and further reductions likely as the Federal Reserve is expected to cut its federal funds rate, homebuyers may soon experience some relief.
Though the Fed’s rate cuts don’t directly control mortgage rates, they can influence borrowing costs, potentially lowering mortgage payments in the months ahead.
Currently, for qualified borrowers putting down a standard 20% deposit on a $1 million mortgage, monthly payments would be substantial. At an average 6.41% rate for a 30-year loan, the payment would be around $5,009, while a 15-year mortgage at 5.78% would cost approximately $6,656.
If the anticipated rate cut of 25 basis points occurs, these payments could drop slightly. A 30-year loan at 6.16% would mean a monthly payment of $4,879, while a 15-year loan at 5.53% would be $6,549. With a full percentage point decrease, expected potentially by late 2024 or 2025, buyers could see their payments fall even further to around $4,497 per month for a 30-year loan or $6,235 for a 15-year loan.
These reductions could save buyers hundreds of dollars monthly, but timing is key. Waiting for rates to fall carries its own risks, such as increased competition for homes and potential price hikes, which may offset the savings. Prospective buyers should carefully weigh the pros and cons, considering not just mortgage rates but also their housing needs and market conditions.
