Mortgage Rates Drop Post Fed Rate Cut and Election. Today's Mortgage Rates, Nov 2024
During the Federal Reserve’s two-year rate hiking campaign to lower inflation, prospective homebuyers watched mortgage rates hit record highs. When the central bank finally began cutting interest rates this fall, many were eager for relief. Yet mortgage rates went in the opposite direction, surging over the past two months due to strong economic data and political uncertainty around the elections.
The average interest rate for a standard 30-year fixed mortgage is 6.88% today, down -0.02% compared to one week ago. The average rate for a 15-year fixed mortgage is 6.13%, which is an increase of 0.01% since last week.
After its September 0.5% interest rate cut, the Fed implemented a 0.25% reduction at its Nov. 7 policy meeting. Ongoing rate cuts, combined with cooler inflation and slower economic growth, should allow mortgage rates to fall. But it won’t be linear, especially if a new administration pursues policies that reverse course and delay additional rate cuts.
What’s behind today’s high mortgage rates?
Mortgage rates dropped to a two-year low earlier this fall due to concerning economic data, like rising unemployment, that led investors to believe the Fed would begin aggressively cutting rates. Shortly after, Treasury yields and mortgage rates increased rapidly.
Though the Fed influences the direction of mortgage rates, it doesn’t directly set them. In fact, mortgage rates tend to move ahead of the Fed, fluctuating daily in response to various economic indicators, including inflation and labor data, changes in the bond market, investor expectations and geopolitical risks. In October, all of those factors converged, generating volatility in the mortgage market.
Donald Trump’s reelection is likely to usher in new economic policies that investors worry could result in a higher deficit and inflation. The prospect of increased government spending doesn’t bode well for long-term interest rates, like on 30-year fixed mortgages, said Nicole Rueth, SVP of the Rueth Team Powered by Movement.
Despite recent volatility, an easing mortgage market is still possible, especially if the Fed sticks with its plan to carry out a series of rate cuts over the next year. But it will be a slow process, said Matt Vernon, head of consumer lending at Bank of America.
How low will mortgage rates go this year?
Most forecasts still call for the average 30-year fixed mortgage rate to drop close to 6% by the end of the year. To get there, we need to see weaker economic data (particularly in the labor market) and another Fed rate cut in December.
Much remains unclear about the new administration’s near-term economic policies and their impact. Each month brings a new set of inflation and labor data that can change how investors and the market respond and what direction mortgage rates go. If the economy continues to show signs of strength, the Fed may consider pausing rate cuts, which would keep mortgage rates elevated, said Rueth.
The path to cheaper home loan rates is going to be long and bumpy, and we’re still far from an affordable housing market. “It would take a pretty significant drop in rates to really make a dent in affordability now, which seems unlikely in the near term,” said Alex Thomas, senior research analyst at John Burns Research and Consulting.
Which mortgage term and type should I pick?
Each mortgage has a loan term, or payment schedule. The most common mortgage terms are 15 and 30 years, although 10-, 20- and 40-year mortgages also exist. With a fixed-rate mortgage, the interest rate is set for the duration of the loan, offering stability. With an adjustable-rate mortgage, the interest rate is only fixed for a certain amount of time (commonly five, seven or 10 years), after which the rate adjusts annually based on the market. Fixed-rate mortgages are a better option if you plan to live in a home in the long term, but adjustable-rate mortgages may offer lower interest rates upfront.
30-year fixed-rate mortgages
The 30-year fixed-mortgage rate average is 6.88% today. A 30-year fixed mortgage is the most common loan term. It will often have a higher interest rate than a 15-year mortgage, but you’ll have a lower monthly payment.
15-year fixed-rate mortgages
Today, the average rate for a 15-year, fixed mortgage is 6.13%. Though you’ll have a bigger monthly payment than a 30-year fixed mortgage, a 15-year loan usually comes with a lower interest rate, allowing you to pay less interest in the long run and pay off your mortgage sooner.
5/1 adjustable-rate mortgages
A 5/1 ARM has an average rate of 6.22% today. You’ll typically get a lower introductory interest rate with a 5/1 ARM in the first five years of the mortgage. But you could pay more after that period, depending on how the rate adjusts annually. If you plan to sell or refinance your house within five years, an ARM could be a good option.
Where can I find the best mortgage rates?
Though mortgage rates and home prices are high, the housing market won’t be unaffordable forever. It’s always a good time to save for a down payment and improve your credit score to help you secure a competitive mortgage rate when the time is right.
Save for a bigger down payment: Though a 20% down payment isn’t required, a larger upfront payment means taking out a smaller mortgage, which will help you save in interest.
Boost your credit score: You can qualify for a conventional mortgage with a 620 credit score, but a higher score of at least 740 will get you better rates.
Pay off debt: Experts recommend a debt-to-income ratio of 36% or less to help you qualify for the best rates. Not carrying other debt will put you in a better position to handle your monthly payments.
Research loans and assistance: Government-sponsored loans have more flexible borrowing requirements than conventional loans. Some government-sponsored or private programs can also help with your down payment and closing costs.
Shop around for lenders: Researching and comparing multiple loan offers from different lenders can help you secure the lowest mortgage rate for your situation.