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Fed Preparing for the first interest rate cut in years this fall, which could impact mortgage Interest rates fall.
Even a small reduction in interest rates could have a significant impact on how much home buyers pay. So far, home buyers in the market have been eagerly waiting for the central bank to cut interest rates.
The Federal Reserve meets this week, but experts say the first rate cut seems more likely to come in September. This would be the first rate cut since the outbreak of the Covid-19 pandemic in 2020.
Although the probability of a rate cut at the upcoming Federal Open Market Committee meeting is less than 6% CME Group’s Fed Watch A quarter-percentage point decrease is more likely in September, November and December, according to a measure of futures market pricing.
Some experts say that coupled with further rate cuts in 2025, the Fed’s benchmark federal funds rate will fall below 4% by the end of next year.
While mortgage rates are fixed and primarily tied to Treasury yields and the economy, they are affected to some extent by Federal Reserve policy. Home loan rates have begun to fall, in part due to the Federal Reserve’s slowing economy.
Here’s what homeowners and buyers need to know.
Interest rate cuts have been digested by the market
Chen Li, director of economic research at online real estate brokerage Redfin, said that the first interest rate cut has almost been completely reflected in the financial market, especially the bond market. In other words, once the Fed actually starts cutting rates, mortgage rates won’t change much, she said.
“A lot of the rate cuts have already been priced in,” she said.
According to data provided by Freddie Mac through the Federal Reserve, the 30-year fixed-rate mortgage rate fell to 6.78% on July 25 from 7.22% on May 2.
Refinance now or later?
“Refinances are starting to increase, and while it’s not a huge wave yet, they are starting to pick up a little bit as interest rates start to come down,” Zhao said.
refinancing activity Existing home loans rose 15% from the previous week to the highest level since August 2022, according to Mortgage Bankers Association. MBA found that this number is 37% higher than a year ago.
CoreLogic chief economist Selma Hepp said whether homeowners should refinance depends in part on their existing interest rates.
“Some were born last fall when mortgage rates peaked at 8 percent,” Hupp said. For those buyers, “there are some opportunities there.”
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“Make money”, or when it makes sense refinanceExperts say homeowners would need to see mortgage rates drop significantly to benefit. The prevailing interest rate should be at least 50 basis points lower than the current interest rate. A basis point is one hundredth of a percentage point.
Jacob Channel, senior economist at LendingTree, said that while this may be a good strategy, it’s not a “hard and fast rule.”
The timing of refinancing a home depends on factors like your monthly mortgage payments and your ability to pay closing costs: “There’s a lot of variability,” he said. (When you Refinance With a mortgage, you may be responsible for closing costs as well as appraisal and title insurance; the total price depends on your area.
“The savings have to exceed your upfront costs,” Zhao explains.
Even if your existing mortgage has a high interest rate, you may want to consider waiting until the central bank cuts rates further, with rates expected to fall steadily throughout the year and into 2025, Zhao said.
If you’re considering this, contact your lender to see if refinancing now or in the near future makes the most sense for you, Channel says.
Buy now or buy later?
Zhao said that while lower interest rates can provide relief to cost-constrained homebuyers, the actual impact of lower borrowing costs remains unresolved.
For example: If the cost of borrowing a home loan falls, more buyers are likely to flood the market. If demand exceeds supply, prices could rise even more, she said. It can “offset relief from mortgage interest rates.”
But Channel said exactly what will happen in the housing market is “uncertain” and will depend on how much mortgage rates fall in the second half of the year and the level of supply.
“Timing the market is basically impossible,” Channel said. “If you always wait for perfect market conditions, you’ll be waiting forever. Only buy if it’s a good idea for you.”
