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Mortgage rates fell this week and could fall further in the coming weeks and months as inflation continues to slow. The average rate on a 30-year mortgage fell to 6.89%, down 6 basis points from the previous week, according to Freddie Mac.
On Thursday, the Bureau of Labor Statistics reported that the Consumer Price Index rose 3.0% year-over-year in June, down sharply from 3.3% in May and lower than the 3.1% increase that had been expected.
Mortgage rates are expected to trend lower as inflation slows and the Federal Reserve is able to start lowering the federal funds rate. This latest inflation report makes it more likely that the Fed will cut rates soon. However, incoming data needs to continue to show that inflation is slowing and the economy is cooling.
Prior to the release of the CPI data, investors were expecting the Fed to cut interest rates one or two times in 2024, but according to the CME FedWatch tool, up to three rate cuts could come before the end of the year. This would significantly reduce upward pressure on mortgage rates and ultimately cause rates to trend lower.
Today's mortgage rates
Mortgage Type Today's Average Interest Rates
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Today's mortgage refinance rates
Mortgage Type Today's Average Interest Rates
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$1,161 Estimated Monthly Payment
Paying a 25% higher down payment would save you $8,916.08 in interest. Lowering your interest rate by 1% would save you $51,562.03. Paying an extra $500 per month would shorten the term of your loan by 146 months.
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30-year fixed mortgage rate
The average interest rate on a 30-year fixed mortgage this week was 6.89%, six basis points lower than the previous week, according to Freddie Mac.
A 30-year fixed rate mortgage is the most common type of mortgage. With this type of mortgage, you pay back the amount you borrow over 30 years, and your interest rate will remain the same for the life of the loan.
A long 30-year repayment term spreads your payments over a longer period of time, making your monthly payments lower and more manageable. The trade-off is that your interest rate will be higher than if you had a shorter repayment term or a variable rate loan.
15-year fixed mortgage rate
The average interest rate on a 15-year mortgage this week was 6.17%, down 8 basis points from the previous week, according to data from Freddie Mac.
If you want the predictability that a fixed rate offers, but want to lower your interest payments over the life of your loan, a 15-year fixed-rate mortgage may be right for you. These terms are shorter and have lower interest rates than 30-year fixed-rate mortgages, which could save you tens of thousands of dollars in interest. However, your monthly payments will be higher than you would with a longer term.
Will mortgage rates fall?
Mortgage rates have risen through much of 2023. However, mortgage rates are expected to trend lower over the coming months and years.
Over the past 12 months, the Consumer Price Index has increased by 3.0%. As inflation falls and the Federal Reserve is able to start lowering the federal funds rate, mortgage rates should fall further.
For homeowners looking to use the value of their home to cover a major purchase, like a home improvement, a home equity line of credit (HELOC) may be a good option while they wait for mortgage rates to drop. Check out our best HELOC lenders to find the best loan for you.
A HELOC is a line of credit that allows you to borrow against the equity in your home. It's similar to a credit card in that you only borrow what you need, rather than a lump sum. It also allows you to tap into the money you have left in your home without having to pay off your entire mortgage like a cash-out refinance would.
Current HELOC interest rates are relatively low compared to other loan options such as credit cards and personal loans.
How will the Federal Reserve's interest rate hike affect mortgages?
The Federal Reserve has aggressively raised the federal funds rate in 2022 and 2023 in an effort to stave off economic growth and tame inflation, causing mortgage rates to skyrocket.
While mortgage interest rates are not directly affected by changes in the federal funds rate, they often tend to rise or fall ahead of Fed policy shifts. This is because mortgage interest rates change based on investor demand for mortgage-backed securities, and this demand is often influenced by how investors expect Fed rate hikes to affect the overall economy.
Mortgage rates have fallen slightly since the Federal Reserve paused its rate hikes, and they should fall further once the Fed starts cutting rates later this year.
Molly Grace
Mortgage Reporter