With inflation continuing to fall, homebuyers may need to get strategic. RICH LEGG/Getty Images
News this week that inflation fell again in June — its third straight month of declines — was welcome news for millions of Americans, but perhaps most welcome for homebuyers. Potential homebuyers in recent years have been saddled with the highest mortgage interest rates in decades, after rates hovered at record lows in 2020 and 2021.
However, a consistently declining inflation rate could be a sign that a cut in the federal funds rate is on the way. And while interest rates are unlikely to be cut at the Federal Reserve's July meeting, they could come later this year, perhaps before the summer is over. Armed with this knowledge, homebuyers looking for the best possible interest rate would do well to start making strategic moves now. Below, we discuss three actions to take while inflation is declining.
First, find out what mortgage rates you can lock in right now.
3 smart ways to tweak your mortgage rate as inflation subsides
Inflation and a changing interest rate environment that is favorable to borrowers should spark new activity, especially for homebuyers. Here are three things to do right now:
Start Shopping
Most lenders offer buyers roughly the same interest rate, but not exactly the same. Also, terms and closing costs can vary significantly. These differences can result in significant savings, both in the amount you pay at closing and in the interest you pay over the life of the loan. Start shopping now to see what good deals you can find.
An official rate cut by the Federal Reserve will allow borrowers to lower their mortgage rates, but many people are already expecting rate cuts, so instead of waiting for the Fed to act, you might be able to find your ideal lender now.
Start researching mortgage rates online today.
Make sure your credit is in tip-top shape
When you're comparing rates, you'll see average mortgage rates listed, but they often include mortgage points. They also assume that you have the best credit. If you don't, you won't be offered the best rate. So it's important to make sure your credit is in tip-top shape right now.
Mortgage interest rates have been high for the better part of the last two years, and you don't want to miss out on the chance to finally get a better loan because of a mediocre credit score. Pay off your debt, avoid taking on new debt, and check your credit report now to improve your credit score as much as possible.
Know which products you plan to use
Mortgage points act as a fee that lenders charge buyers for low interest rates. They may be worth considering now, as interest rates may fall further. On the other hand, adjustable rate mortgages are mortgages with interest rates that change over time, and they can also be beneficial for buyers who are willing to take on risk and secure the lowest possible interest rate at the moment. So once you've chosen a lender, consider discussing these products now, so you're in a position to choose the right one for you when market timing improves.
Start researching all your mortgage options online today.
Conclusion
Falling inflation rates present an opportunity for millions of borrowers, especially homebuyers. With interest rate cuts appearing imminent, buyers should start looking for lenders now and do their due diligence to improve their credit position as much as possible. They should also explore all mortgage products, from conventional to non-conventional, so they're ready to act when mortgage rate cuts finally come. Taking these steps now can save buyers both time and money.
Matt Richardson