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Increased mortgage rates have made it more difficult for buyers to proceed with the home purchase process. That’s because in addition to these higher rates, home prices have also increased nationally.
However, there is a good chance that mortgages will become cheaper in 2025. The question is: how far will they fall?
Downward movement is expected
At the time of this writing, the average interest rate on a 30-year mortgage is 6.47%. That’s actually a significant drop from recent levels. Mortgage rates aren’t set directly by the Federal Reserve. But when the Fed lowers its benchmark interest rate (the federal funds rate), mortgage rates tend to follow that trend.
The Fed is expected to make its first rate cut before the end of 2024 and then make further cuts in response to falling inflation. That means mortgage rates could be significantly lower by 2025 – and buyers could see a big relief.
To be clear, buyers should not count on the record-low mortgage rates that were available in 2020 and 2021. Back then, you could get a 30-year loan at or below 3%, but we are a long way from reaching those levels again.
In the best case scenario, mortgage rates are expected to fall to around 4% by the end of 2025. However, interest rates in the 5% range are more likely.
Buyers also shouldn’t necessarily expect mortgage rates to be below 6% in early 2025. It may take some time to get there, as the Fed is expected to gradually lower its benchmark interest rate.
How to get the best mortgage rate
If you’re looking to borrow money to buy a home, you obviously want the best mortgage rate you can get. That means lower monthly payments.
One of the most important things you can do to get a lower interest rate on a mortgage is to improve your credit score. This score tells lenders how likely you are to repay your loan on time. The higher the score, the more you can be rewarded in the form of a lower interest rate.
It’s also a good idea to shop around for a mortgage. One lender may be willing to offer you a mortgage at 6.45%, while another may offer you a 6.3% rate. Contact several lenders to see what offers you get, but try to do this within two weeks if possible.
When you apply for a loan, it counts as a hard inquiry on your credit report and can pull your credit score down by several points. A single hard inquiry is generally not a big deal, but a series of them could damage your credit score even more. But if you apply for the same loan, type If you submit multiple credit applications within two weeks, all of those applications will generally be considered a single hard inquiry, minimizing the impact on your credit score.
Finally, you should know that lenders typically offer much lower interest rates on 15-year loans than on 30-year loans. With a 15-year mortgage, you’ll have to make higher monthly payments, and these may be unmanageable in times of rising home prices.
But calculate the numbers based on your income and the estimated purchase price of your home, because if you may If you pay the higher rates each month, you can save a lot of interest in the long run.
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