Don’t expect lower rates until autumn

Mortgage rates remain elevated today, and they should stay relatively high until inflation slows and the Federal Reserve lowers the federal funds rate.

While many people expected the Fed to drop the federal funds rate this spring or summer, experts say a rate cut won’t happen until later this year, likely in September. In fact, it’s looking like the Fed will probably only decrease its rate twice in 2024, although economists had previously predicted three cuts this year.

If you’re otherwise ready to buy a house now, you might not want to wait for rates to drop before you start the process. It could be months before we see any significant changes.

Current mortgage rates

The national average 30-year fixed mortgage rate is 6.88% this week, according to Freddie Mac. This is a small bump from last week when the rate was 6.82%.

The average 15-year fixed mortgage rate has increased too. The 15-year rate is 6.16%, which is up from last week’s 6.06%.

Learn more: Is it a good time to buy a house?

30-year vs. 15-year fixed mortgage rates

The average 30-year mortgage rate today is 6.88%. A 30-year term is the most popular type of mortgage because by spreading out your payments over 360 months, your monthly payment is lower than with a shorter-term loan.

The average 15-year mortgage rate is 6.16% today. When deciding between a 15-year and a 30-year mortgage, think about your short-term versus long-term goals.

A 15-year mortgage comes with a lower interest rate than a 30-year term. This is great in the long run because you’ll pay off your loan 15 years sooner, and that’s 15 fewer years for interest to accumulate. But the trade-off is that your monthly payment will be higher as you pay off the same amount in half the time.

Let’s say you get a $300,000 mortgage. With a 30-year term and a 6.88% rate, your monthly payment toward the principal and interest would be $1,971.79, and you’d pay $409,844 in interest over the life of your loan — on top of that original $300,000.

If you get that same $300,000 mortgage but with a 15-year term and 6.16% rate, your monthly payment would jump up to $2,557.58 — but you’d only pay $160,364 in interest over the years.

Fixed-rate vs. adjustable-rate mortgages

With a fixed-rate mortgage, your rate is locked in for the entire life of your loan. You will get a new rate if you refinance your mortgage, though.

An adjustable-rate mortgage keeps your rate the same for a predetermined period of time. Then, the rate will go up or down depending on several factors, such as the economy and the maximum amount your rate can change according to your contract. For example, with a 10/1 ARM, your rate would be locked in for the first decade, then change every year for the remaining 20 years of your term.

Adjustable rates typically start lower than fixed rates, but once the initial rate-lock period ends, it’s possible your rate will go up.

How to get a low mortgage rate

Mortgage lenders typically give the lowest mortgage rates to people with higher down payments, great or excellent credit scores, and low debt-to-income ratios. So if you want a lower rate, try saving more, improving your credit score, or paying down some debt before you start shopping for homes.

Learn more: How to get the lowest mortgage rates

Waiting for rates to drop probably isn’t the best method to get the lowest mortgage rate right now unless you are truly in no rush and don’t mind waiting until the end of 2024 or into 2025. If you’re ready to buy, focusing on your personal finances is probably the best way to lower your rate.

How to choose a mortgage lender

To find the best mortgage lender for your situation, apply for mortgage preapproval with three or four companies. Just be sure to apply to all of them within a short time frame — doing so will give you the most accurate comparisons and have less of an impact on your credit score.

When choosing a lender, don’t just compare interest rates. Look at the mortgage annual percentage rate (APR) — this factors in the interest rate, any discount points, and fees. The APR, which is also expressed as a percentage, reflects the true annual cost of borrowing money. This is probably the most important number to look at when comparing mortgage lenders.