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The latest Consumer Price Index (CPI) data showed inflation slowed more than expected in June, and mortgage rates are falling: The average rate on a 30-year mortgage fell below 6.5% for the first time in two weeks, according to Zillow data.
The weaker-than-expected inflation report has raised the odds of the Federal Reserve cutting interest rates multiple times this year. Markets initially expected the central bank to only cut the federal funds rate once or twice in 2024, but are now pricing in the possibility of three rate cuts by the end of the year, according to the CME FedWatch tool.
This is great news for hopeful homebuyers, as mortgage rates are expected to trend lower once the Fed starts cutting its benchmark interest rate. As long as inflation continues to moderate, borrowers taking out mortgages later this year or in 2025 should be able to get lower interest rates.
Current mortgage interest rates
Mortgage Type Today's Average Interest Rates
This information is provided by Zillow. See more mortgage rates on Zillow. Zillow Real Estate
Current refinance rates
Mortgage Type Today's Average Interest Rates
This information is provided by Zillow. See more mortgage rates on Zillow Zillow Real Estate
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30-year fixed mortgage rate
The average interest rate on a 30-year fixed mortgage was 6.89% last week, down 6 basis points from 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 last 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.
When will mortgage rates fall?
Mortgage rates began to rise from record lows in the second half of 2021, rising by more than three percentage points in 2022. Rates also rose significantly last year, but began trending downward again toward the end of 2023.
As inflation falls, mortgage rates will fall as well, with most major forecasts predicting rates will fall in the second half of 2024.
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 raised the federal funds rate in an attempt to slow economic growth and control inflation, which has fallen significantly but remains just above the Fed's target rate of 2%.
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.
Over the past two years, mortgage rates have risen as the Fed has raised interest rates, but the central bank has signaled that it may stop raising rates and start lowering rates in 2024. As the Fed cuts interest rates, mortgage rates should fall further.
Molly Grace
Mortgage Reporter