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Better inflation data and evidence of slowing economic growth should push mortgage rates below 7%. Getting below 7% depends on inflationary pressures easing further. — Greg McBride, chief financial analyst at Bankrate
Mortgage interest rates forecast for June 2024
Homebuyers this spring were hit with mortgage interest rates of more than 7%, and those costs could change heading into the summer as improving inflation pushes interest rates lower, according to Bankrate's latest interest rate forecast.
“Improving inflation measures and evidence of slowing economic growth should push mortgage rates below 7%,” says Greg McBride, CFA, chief financial analyst at Bankrate. “Whether rates drop below 7% will depend on inflationary pressures easing further.”
That doesn't mean rates won't fluctuate from week to week, or even day to day, and that there won't be a sudden rush of buyers this summer. Just last week, borrowers pulled back when rates rose.
“Borrowers remain sensitive to small increases in interest rates, which is impacting the refinance market and keeping purchase applications below last year's levels,” said Joel Kan, vice president and deputy chief economist at the Mortgage Bankers Association.
Mortgage rates remain high primarily due to inflation, which has yet to settle at the Federal Reserve's 2% target. As a result, the Fed continues to postpone rate cuts, creating an uncertain timeline and pushing up the 10-year Treasury yield, the benchmark for 30-year fixed mortgage rates.
The central bank is scheduled to meet again on June 11 and 12, around the same time as the latest inflation figures fall. Policymakers will use those figures and other data to decide whether to keep interest rates on hold or start cutting them.
It's probably the former, said Melissa Cohn, regional vice president at William LaVais Mortgage.
“The outlook for the Fed's first rate cut has been pushed back to November,” Kohn said. “The continued hawkish stance has pushed bond yields higher, and they're likely to remain so until new economic data shows inflation is moderating.”
Current trends in mortgage interest rates
According to Bankrate's survey of lenders, the average interest rate on a 30-year mortgage was 7.17% as of May 29. That's down from 8.01% on Oct. 25 of last year, which is good news, but it's still higher than the 6% rate in January of this year.
Bankrate's average weekly mortgage rates differ slightly from statistics reported by Freddie Mac, a government-sponsored company that buys and securitizes mortgages. Bankrate's rates tend to be higher because they include origination points and other fees, while Freddie Mac excludes those figures and reports them separately. However, both Bankrate and Freddie Mac report similar overall trends in mortgage rates.
When will mortgage rates fall?
Overall, we expect mortgage rates to ease, but we are lowering our expectations for a sharp decline, at least until the Fed cuts rates.
“The Federal Reserve's planned interest rate cuts later this year should help the situation by lowering home prices and increasing supply,” said Lawrence Yun, chief economist at the National Association of Realtors.
McBride initially predicted mortgage rates would fall to 5.75% by the second half of 2024, but economic realities mean they'll likely remain in the 6.25% to 6.4% range by the end of the year.
Mortgage giant Fannie Mae also raised its outlook, now expecting rates to hit 7% by the end of 2024, up from its previous forecast of 6.4%.
What to do if you want to get a mortgage now
Mortgage rates are still at record highs, but the basic advice for getting a mortgage applies regardless of the economy or market.
Improve your credit score. Having a low credit score doesn't mean you can't get a loan. But it can make a big difference between getting the lowest interest rate and getting more expensive loan terms. The best mortgage rates usually go to borrowers with a credit score of 740 or higher. Generally, the more confident a lender is in your ability to repay, the lower the interest rate they'll offer you. Save for a down payment. Putting a larger down payment up front can help you get a lower mortgage interest rate. And a 20% down payment can help you avoid mortgage insurance, which adds to the cost of your loan. If you're a first-time home buyer and can't put down 20% down, there are loans, grants, and programs that can help. Eligibility requirements vary by program, but are often based on income and other factors. Understand your debt-to-income ratio. Your debt-to-income ratio (DTI) is the amount of debt you have compared to your income, specifically your total monthly debt compared to your total income. If you don't know how to calculate your DTI ratio, Bankrate has a calculator. Research the different mortgage types and term lengths. A 30-year fixed-rate mortgage is the most common option, but shorter terms are available, and adjustable-rate mortgages have also become increasingly popular recently.
FAQ
How are mortgage interest rates determined?
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While it may seem like a bank or lender sets the terms of your mortgage, mortgage interest rates are not actually set directly by any one institution. Mortgage interest rates are determined by a complex web of economic factors. Lenders typically set their interest rates based on the return they need to make a profit, taking into account risks and costs.
The Federal Reserve doesn't set mortgage rates directly, but it does set the overall trend. The closest benchmark to mortgage rates is the 10-year Treasury yield. Historically, a typical 30-year mortgage rate has been about 2 percentage points higher than the 10-year Treasury yield. In 2023, that “spread” was around 3 percentage points.
When should you refinance your mortgage?
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With mortgage rates soaring to a 23-year high, not many borrowers are choosing to refinance their mortgages right now, but if rates fall again, homeowners may start considering refinancing.
The decision about when to refinance is based on a variety of factors. Refinancing may make sense if interest rates have fallen since you first took out your mortgage. It's also a good idea if your credit score has improved and you can lock in a lower interest rate and fees. A cash-out refinance can accomplish the same thing, plus give you money to pay for home improvements or other expenses.