There are a lot of mistakes (and costly mistakes) being made regarding mortgage rates this July. Getty Images/iStockphoto
Mortgage interest rates have remained high in recent years, reaching their highest level since 2000 in August 2023. The combination of the pandemic, inflation, and the Federal Reserve's spending restraint measures has caused interest rates on all borrowing products to skyrocket. Mortgage rates were no exception. However, as inflation has steadily declined from its multi-decade high in June 2022, expectations are growing around a cut in the federal funds rate. While the Fed does not directly dictate the interest rates that lenders offer borrowers, a rate cut would undoubtedly affect how much homebuyers and homeowners looking to refinance are willing to spend on their loans.
Against this backdrop, it is important that both groups carefully consider their mortgage rate options before making a move. And they should exercise extreme caution to avoid some simple but easy-to-make mistakes, especially this July when speculation of interest rate cuts is on the rise. To that end, here are three well-timed mortgage rate mistakes to avoid this month:
First, find out what mortgage rates you qualify for here.
3 mortgage rate mistakes to avoid in July
Knowing what approach to take when buying a home (or refinancing an existing mortgage) is important, but it's equally important to know what mistakes to avoid. Mistakes to avoid this July include:
Not monitoring interest rates
The next inflation report is due from the Bureau of Labor Statistics on July 11, and the next meeting of the Federal Reserve to discuss interest rates begins on July 31. Both meetings have the power to dramatically change interest rates. Once inflation calms down, lenders may start offering lower interest rates in anticipation of a formal rate cut, which could come at the end of the two-day Fed meeting. But if you don't keep an eye on the overall interest rate landscape, especially on these dates and the dates before and after, you could miss an opportunity to take advantage of low-interest offers.
Find out more online about what mortgage rates are likely to be in the future.
Fix a fixed rate
Fixed rates are often a smart way to hedge against future interest rate increases and the additional costs that come with them, but in today's interest rate climate, where multiple rate cuts are expected, locking in a fixed rate could be a mistake for some borrowers.
Instead, you may be better off with an adjustable-rate mortgage (ARM). This type of mortgage adjusts over time, and the adjustments may offer a lower interest rate in the short term. For a fixed-rate mortgage, you may need to refinance your traditional mortgage to secure a better rate. Adjustable-rate mortgages aren't for everyone and come with inherent risks, but it would be a mistake not to investigate them now, especially with the increased possibility of rate cuts.
Don’t shop around for lenders
With a product like a mortgage, where hundreds of thousands of dollars are involved, not researching your lender is a mistake. But with interest rates changing in July 2024, it's a critical mistake to avoid. By researching your lender, you could save more than half a percentage point, which can add up to significant savings in both your monthly payment and over the life of your loan. But you won't realize those savings if you don't shop around to find the lender with the lowest interest rate and best terms. And remember: You don't necessarily have to refinance with the same lender you bought your home with.
Start searching for lenders and interest rates here today.
Conclusion
As a low interest rate environment becomes more likely, homebuyers and current homeowners considering refinancing their mortgages should take a cautious and nuanced approach to the mortgage rate environment, such as avoiding simple but costly mistakes. This includes not monitoring the changing interest rate environment for new lower rate opportunities, instead locking in a fixed rate and opting for a potentially lower adjustable rate mortgage, and not shopping around for the lowest interest rate and most competitive terms. By avoiding these mistakes now, buyers and owners can increase their chances of mortgage rate success not only this July but in the months to come.
Matt Richardson