Mortgage rates continue downward trend

The average mortgage interest rate for a standard 30-year fixed mortgage last week was 6.30%, a decrease of 0.14 percentage points from the previous week’s 6.44%, according to Bankrate.

Thirty-year fixed mortgages are the most commonly sought out loan term.

A 30-year fixed rate mortgage has a lower monthly payment than a 15-year one, but usually has a higher interest rate.

The average mortgage interest rate for a standard 15-year fixed mortgage was 5.64%, a decrease of 0.23 percentage points from the previous week’s 5.87%, according to Bankrate.

Fifteen-year fixed rate mortgages come with a higher monthly payment compared to its 30-year counterpart.

However, interest rates usually are lower and you will pay less total interest because you are paying off your loan at a faster rate.

The average rate on a 5/1 adjustable rate mortgage (ARM) was 5.88%, a decrease of 0.16 percentage points from the previous week’s 6.04%.

With an ARM, you will most often get a lower interest rate than a fixed mortgage for say, the first five years.

But you could end up paying more or less after that time depending on your loan terms and how that rate follows the market.

When picking a mortgage, it is important to pick out a loan term or payment schedule.

Usually you will be offered a 15 or 30-year loan term, but it is not uncommon to see 10, 20, or 40-year mortgages, according to CNET.

Mortgages can be fixed-rate or adjustable-rate. Interest rates in fixed-rate mortgages are set in stone for the duration of the loan.

Adjustable-rate mortgages only have interest rates set for a certain period of time before the rate adjusts annually based on the market.

The Federal Reserve is poised to cut rates at its Sept. 18 meeting – but don’t expect the move to send mortgage rates plummeting.

That’s because the mortgage market has already incorporated the Fed’s widely anticipated cut into the rates borrowers are paying for home loans today.

“I think a lot of people are looking at the September Fed meeting thinking that there’s going to be a big stair step down in rates,” said Jerimiah Taylor, chief real estate officer at Movoto, a real estate search site. “The reality is that it’s already priced in. You’re getting disproportionate movement in mortgage rates, which means the market is already starting to price in Fed cuts.”

In the past couple months, mortgage rates have fallen more than half a point. In early July, the average rate on a 30-year loan was 7.09%, according to Bankrate’s national survey of lenders.

By Bankrate’s Sept. 11 survey, that rate had dropped to 6.31% – all without the Fed touching its benchmark rate.

The longer-term trend is even more dramatic. In October 2023, mortgage rates briefly topped 8%. They’re down 1.7 percentage points since then. Again, with no change in Fed policy.

The significant move in rates illustrates the reality that fixed mortgage rates are set not by the Fed, but by investors. The most important benchmark for mortgage rates is the 10-year Treasury rate. Mortgage rates tend to move up and down with that rate, which itself bounces around with economic sentiment.

“Mortgage rates move with the bond market, and if the Fed cuts rates, that is an indication that the economy is weakening and will support lower yields and lower mortgage rates,” said Melissa Cohn, regional vice president of William Raveis Mortgage. “Remember, mortgage rates are not tied directly to the Fed funds rate. They move with the bond market, which moves on economic data.”

Another variable is how big the Fed’s rate cut is, and how many times the central bank pares rates. Fed Chairman Jerome Powell has signaled that a rate cut is coming this month. It would be the first time the central bank has reduced rates since it slashed them to zero in 2020, during the depths of the pandemic.

Market watchers expect the Fed to cut rates by a quarter point, although a half-point reduction is possible. If the Fed were to cut rates more than expected, that could push mortgage rates down further.

But if the Fed sticks to the most likely plan and enacts a smaller cut, it’s possible that mortgage rates won’t move.

The Fed isn’t expected to stop at that first cut, however. In the coming months and into 2025, additional reductions could be reflected in more downward moves for mortgage rates.