Will mortgage rates fall this week? What you should know

This week, something is likely to happen that has not happened since March 2020: The Federal Reserve will cut interest rates. Key interest rate The Fed is now frozen at between 5.25% and 5.50%, the highest in decades, putting it on the verge of making its first cut in years, likely by 25 basis points. But more cuts could come later this year, as the Fed will hold two more meetings before the end of 2024.

The last time the Fed cut interest rates was at the height of the pandemic, and interest rates on credit products fell as a result. So does this mean that Mortgage interest ratesalready fallen by more than one point since 2023will fall this week too? Not necessarily. Below we explain what home buyers should know now.

First, take a look at how low the mortgage rate you could secure here could be.

Will mortgage rates fall this week?

The short answer to that question is “maybe.” The more detailed answer depends on a number of considerations that vary by lender. That’s because the Fed’s expected rate cut this week may already have been “priced in” by the bank or lender you plan to use. For example, the rate listed on the lender’s website today may not be much different than the rate offered after the official cut on September 18. However, how much each bank has priced in this week’s cut may vary.

But mortgage rates don’t just follow Fed monetary policy, although they are heavily influenced by it. They also follow the interest rate on the 10-year U.S. Treasury yield. Mortgage rates tend to follow this direction, rising or falling with the yield. This relationship exists because mortgages and 10-year U.S. Treasury bonds are competing long-term investments in the bond market.

When the 10-year Treasury yield rises, it typically indicates higher investor confidence in the economy and potentially higher inflation expectations. This causes investors to demand higher yields on mortgage-backed securities, which prompts lenders to raise mortgage rates. When the 10-year Treasury yield falls, mortgage rates typically fall as well. This correlation means that even if the Fed keeps its benchmark interest rate stable, changes in the 10-year Treasury yield can cause mortgage rates to fluctuate.

And remember that the best mortgage rates and terms are always available to borrowers with clean credit histories and high Credit scores. Even if interest rates fall again later this week, you won’t be able to benefit if your credit profile isn’t as attractive as lenders want. For example, the interest rates listed on lenders’ websites are for people with excellent credit. And some also list their offers with Mortgage points already attached, making them appear lower than they would be if you had not paid that fee to get the lower price. So it is crucial Monitor mortgage rates daily and pay close attention to the fine print to make sure what is advertised is available to a lender with your unique profile.

Compare your mortgage rates online today.

Don’t forget the cumulative effect

Even if mortgage rates fall in direct proportion to the fed funds rate — which is unlikely — that cut will be only 25 basis points if predictions for this week’s rate cut are correct. That will provide buyers with little relief. But don’t forget the cumulative effect of rate cuts. If the fed funds rate is cut by the same amount at the Fed’s November meeting and again by the same amount at the December meeting, buyers could expect significant relief from their rate offers this year. And further potential cuts in 2025 could make it even more affordable to borrow money.

But mortgage rate cuts will be inevitable complicate the home buying process This will likely lead to higher property prices and increased competition among buyers who have previously held off, so prospective buyers will need to carefully weigh up the impending changes in the interest rate climate against immediate action to decide what is the most cost-effective approach for their situation.

The conclusion

Yes, mortgage rates could fall again this week, but it’s more likely that most of today’s deals reflect that cut in advance. However, with multiple rate cuts being discussed for the coming months, the cumulative effect on mortgage rates is likely to be significant, so it’s important to consider what the housing market might look like then and the benefits of acting now to better decide how best to proceed.

Find out about current mortgage interest rates here.