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In November 2023, the average 30-year mortgage rate soared to 7.76%. And that was extremely discouraging to buyers, especially given that home prices have been elevated since they started climbing in 2021.
But recently, mortgage rates have begun to fall. Since June, they've been below 7%. And on Sept. 19, following a half-point rate cut from the Federal Reserve, the average 30-year mortgage rate dropped to 6.09%.
That's a world of a difference from where mortgage rates sat almost a year ago. You may even be inclined to go out and sign a mortgage right now given the recent downtick in rates.
But actually, now's not the best time to sign a mortgage, even though rates are falling. If you sit tight a bit longer, you might benefit in the form of more mortgage savings.
It pays to be patient with your next mortgage
Although the Federal Reserve doesn't set mortgage rates, or any consumer borrowing rates, the decisions it makes for its benchmark interest rate tend to influence consumer borrowing costs.
Case in point: The Fed lowered interest rates on Sept. 18. And now, in the weeks that follow, consumers are likely to enjoy modestly lower rates for products like auto loans, home equity loans, and more.
Similarly, mortgage rates are already sitting at their lowest level since February 2023. And in the next week or so, they might continue to dip.
But there's a good chance mortgage rates will be quite a bit lower later in 2024 and in 2025.
The reason? The Fed is expected to keep cutting rates in response to cooling inflation. As the Fed continues to lower its benchmark interest rate, the cost of signing a mortgage could continue to creep downward.
So while you may be tempted to sign a mortgage at just over 6% today, you should know that waiting a few more months could mean signing that loan at just under 6%. And if you wait until 2025, you might end up with a mortgage in the mid-5% range or lower, which is much better for your finances overall.
Set yourself up to save big
You don't want to rush into signing a mortgage just yet, despite a recent dip in rates. But one thing you should do now is see what steps you can take to make yourself a more desirable loan candidate.
The higher your credit score, for example, the more likely you are to not only get approved for a mortgage, but to lock in an affordable rate. So if your credit score could use a lift, work on boosting it by paying off credit card balances and being timely with existing bills and debt payments. Also check your credit report and make sure it doesn't contain errors.
It's also a good time to run some numbers and see how much house you can afford. You generally don't want to take on a home whose total costs, including mortgage payments, property taxes, and insurance, will eat up more than 30% of your take-home pay.
In fact, if you're spending a bit less money in general thanks to cooling inflation, try banking some in a high-yield savings account to put toward a home purchase. The more you're able to put down, the lower your monthly mortgage payments will be. And that, plus signing a mortgage when rates are lower, could make homeownership more affordable.
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