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2023 was not an ideal time for homebuyers. With nagging inflation, the benchmark interest rate range landed between 5.25% and 5.50% — a 22-year high. Consequently, mortgage interest rates hit their highest point since 2000. And that benchmark rate hasn’t changed since July.
That said, rates haven’t increased since that point either and inflation has steadily ticked down since.
Against this backdrop, mortgage interest rates have dropped slightly in recent weeks. And there’s an expectation that rate cuts are in play for later this year. With this understanding, prospective homebuyers may want to start crunching the numbers to better determine an opportune time to act. Is it really worth waiting to buy a home or should buyers proceed now and ultimately refinance when rates stabilize in the future?
Start exploring your mortgage rate options here to see what you qualify for.
Here’s how much homebuyers could save if mortgage rates fall
Mortgage rate cuts are highly speculative and subject to change quickly. And while closely tied to the Fed’s benchmark rate, they aren’t identical. After all, mortgage rates have fallen in recent weeks even without the Fed making a cut. So it’s possible, if not likely, that they’ll fall by a greater amount than any rate cuts that are ultimately made.
For calculation purposes, we will assume three benchmark rate cuts of 25 basis points each (a total of 75 basis points) and an exact cut in rates by the same amount for mortgage rates (although, again, they’re unlikely to match up exactly). The average interest rate for a 30-year mortgage as of January 10 is 7.06%.
For calculation purposes, we will assume a 20% down payment. Here’s what buyers could expect to save with three different mortgage amounts:
- $400,000 mortgage ($80,000 down payment): The monthly mortgage payment at today’s 7.06% rate for this loan amount would be $2,141 for qualified borrowers, not including costs for home insurance and taxes. At 6.31% (today’s rate minus 75 basis points), buyers could expect to pay $1,982 per month for a total savings of $159 per month.
- $800,000 mortgage ($160,000 down payment): The monthly mortgage payment at today’s 7.06% rate for this loan amount would be $4,283 for qualified borrowers, not including costs for home insurance and taxes. At 6.31% (today’s rate minus 75 basis points), buyers could expect to pay $3,965 per month for a total savings of $318 per month.
- $1,000,000 mortgage ($200,000 down payment): The monthly mortgage payment at today’s 7.06% rate for this loan amount would be $5,354 for qualified borrowers, not including costs for home insurance and taxes. At 6.31% (today’s rate minus 75 basis points), buyers could expect to pay $4,956 per month for a total savings of $398 per month.
Not sure what your mortgage rate and payment would be? Find out here now.
Why you should buy a home now
As the above estimates show, you stand to save more money if you wait for interest rates to fall. Depending on your total home cost, however, and the rate you ultimately get, those savings will vary dramatically. That noted, rate cuts in 2024 are not expected to be substantive enough to bring mortgage rates down to where they were in 2020 and 2021. So if you’re waiting for that to happen, you may be better served by acting now.
There are multiple compelling reasons to buy a home today, before rates fall. This includes:
Less competition
While housing inventory was low in 2023, the competition for those homes, depending on where you lived in the country, may have been less steep. With mortgage interest rates where they’ve been, many homeowners have elected to stay put and keep their existing low rate as is. But if rates come down, more owners may sell, resulting in more competing buyers on the market.
You can get a lower rate
Don’t just look at the interest rate you qualify for. You may be able to get it lower with an adjustable-rate mortgage or by purchasing mortgage points from your lender. If the rate you can get now by taking these steps is likely to be close to what you can get when rates eventually fall, you may want to act now to avoid that more competitive sellers market later in the year.
You may miss out on your dream home
Your dream home won’t go on the market every day (hence the name). So don’t pass on it when it does, even with rates being elevated. Instead, many experts recommend “dating the rate and marrying the home.” In other words, purchase your dream home now and refinance to a better rate in the future to avoid missing out on a once-in-a-lifetime opportunity.
The bottom line
Mortgage rates are heading in a lower direction this year, potentially saving buyers hundreds of dollars on their monthly mortgage payments. But the rates of recent years are unlikely to come back in 2024. So crunch the numbers and see if the wait is worth it for you. It may not be if it means more competition and missed opportunities. And with an adjustable-rate mortgage and mortgage points still available, you may be able to secure the going rate from the summer of 2024 now instead.
Learn more about today’s mortgage rates here.