With inflation slowing, interest rate cuts are widely expected later this year, with traders predicting a September rate cut with a nearly 100% probability, according to the CME FedWatch tool, which uses market data to forecast the Federal Reserve's interest rate decisions.
This could be good news for homebuyers, as lower interest rates will likely make monthly mortgage payments a little easier.
Mortgage rates, which are most closely tied to the 10-year Treasury note, tend to move in tandem with the Federal Reserve's benchmark interest rate, so if interest rates are cut later this year, mortgage rates will likely fall.
Most major mortgage lenders expect mortgage rates to fall by the end of the year, and rates have already fallen from 7% to 6.87% in the past week, according to the Mortgage Bankers Association.
Predictions for mortgage rates at the end of 2024 vary slightly: Realtor.com expects the average rate to fall to 6.5%, while Fannie Mae predicts it to be 6.7%.
With leading forecasts calling for interest rates to continue to fall, there may be even more wiggle room in 2025. Wells Fargo projects APRs to average 6% for the first three months of 2025, while MBA expects it to be 5.9%.
With the average U.S. home price at $420,800 and a 20% down payment, here's how interest rates change your monthly mortgage costs.
6.87% (current): $2,2106.7%: $2,1726.5%: $2,1286%: $2,0185.9%: $1,997
These totals suggest that a lower APR could save a homebuyer more than $200 per month.
But whether you can afford to buy a home in the first place depends heavily on other factors, including your income, the price of the home, the size of your mortgage, and whether you have the financial wherewithal to cover costs like insurance and repairs.
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Whether you should wait for mortgage rates to fall and buy a home in 2024 or late 2025 is another question. Home prices could continue to rise in the meantime, and economic conditions could easily change, so there's no guarantee the Federal Reserve will start cutting interest rates in September.
“There's an old saying that says, 'When you marry a house, you marry an interest rate,'” says Kevin McLoughlin, a certified financial planner in Virginia, which suggests that if you see a home you like, buy it, but treat the mortgage rate as something you can refinance later.
But there's a big caveat: “If you're looking at a home that you can't afford now, with the idea that you can refinance to a lower interest rate in the future and it will be within your reach, I would strongly warn you not to buy,” he says.
To get a better idea of whether you can afford to buy a home, use CNBC Make It's mortgage calculator to calculate your monthly mortgage payment based on current 30-year interest rates.
Keep in mind that this calculator doesn't include additional costs like insurance, property taxes or private mortgage insurance, which are typically required for mortgages with less than a 20% down payment.