What will mortgage interest rates look like in September?

The mortgage market has had a turbulent time in recent years. It all started when rates fell to historic lows in 2020 and 2021, with 30-year mortgage rates falling below 3%. As the economy rebounded and inflation has increased Over the next two years, things changed dramatically. The Federal Reserve embarked on an aggressive campaign of rate hikes, which sent mortgage rates considerably and made it difficult to obtain a loan at an affordable rate.

The Fed rate remains stuck at a 23-year highMortgage rates remain high even now. Although today’s rates are not as high as those Mortgage rates at 8% As we saw in late 2023, the average rate is currently 6.57% for 30-year mortgages and 5.95% for 15-year mortgages. So it’s still expensive for the average homebuyer to finance a home. But things may not stay that way for long.

Inflation slows Over the past four months, the Fed has hiked 1.5% and is now approaching the Fed’s target rate of 2%. So, there could be changes in the interest rate environment as early as next month. What can we expect for mortgage interest rates in September? Let’s take a look below.

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What will mortgage interest rates look like in September?

Most analysts and experts expect the Fed to lead its first rate cut of the year The Fed is scheduled to meet next month, September 17-18. The CME’s FedWatch tool also suggests a high probability of a rate cut, predicting that the federal funds rate will be cut to a range of 5.00% to 5.25%, down 25 basis points from the current range of 5.25% to 5.50%.

This anticipated Fed rate cut will not have a direct impact on mortgage rates, but this could influence It is important to temper your expectations, however, as any initial decline in mortgage rates will likely be modest.

For example, if the Fed cuts rates by 25 basis points (0.25%) next month, the average 30-year mortgage rate could drop from 6.57% to about 6.32%. On a $300,000 loan, that would translate into a monthly payment reduction of about $49, from $1,910 to $1,861. It would also impact the total amount of interest paid over the long term.

To put this into perspective, let’s look at the total interest paid over the life of the loan:

• At 6.57%: The total interest paid over 30 years would be approximately $387,612.
• At 6.32%: The total interest paid over 30 years would be approximately $369,899.

This represents a potential saving of $17,713 in interest on the total duration of the mortgage – a significant amount despite the seemingly minimal monthly difference.

For 15-year mortgages, a similar 25 basis point reduction from the current 5.95% could bring rates down to 5.70%. On a $300,000 loan, that would cut your payments by about $40 a month, from $2,523 to $2,483.

This would also impact the total interest paid over the 15-year mortgage term:

• At 5.95%: The total interest paid over 15 years would be approximately $154,225.
• At 5.70%: The total interest paid over 15 years would be approximately $146,976.

This represents a potential saving of $7,249 in interest over the 15-year term.

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Beyond September

While September may bring some relief in terms of mortgage rates, it is important to maintain a long-term perspective. The era of ultra-low rates we experienced in 2020-21 is unlikely to return anytime soon.

However, if inflation continues to moderate and economic growth remains stable, we could see a gradual decline in rates over the coming months and into 2025. This decline will likely be measured and deliberate, rather than dramatic.

How to Prepare for Falling Mortgage Rates

If you’re considering taking out a mortgage once rates drop, there are a few steps you can take to prepare:

• Improve your credit score:Even in a falling rate environment, the best rates are reserved for those with excellent creditTake steps now to improve your score by paying down debt, making payments on time, and addressing any issues. errors on your credit report.
• Stay informed: Keep an eye on what’s happening with the Fed and any other economic indicators. While you can’t perfectly anticipate market movements, being informed can help you make better decisions.
• Discover different types of loans:While 30-year fixed-rate mortgages are the most common option, other types of loans, such as 15-year or Adjustable Rate Mortgages (ARMs) may offer lower rates, so be sure to compare your choices.
• Be ready to act:If rates start to drop more significantly, be prepared with your documentation and pre-approvals so you can move quickly.

The essentials

The mortgage market looks set for a potential shift next month, which could be an opportunity for you to lock in a better mortgage rate. While mortgage interest rates are unlikely to return to the lows of recent years, even small drops, like the one expected in September, can make a significant difference over the life of a loan. And remember: If you find a rate that fits your budget now, feel free to lock itWaiting for lower rates is always a risky bet, especially in today’s unusual economic environment.