You’ve likely heard the news—“The Fed cut rates!” But what does this actually mean for you, especially if you’re thinking about buying, selling, or refinancing a home?
Let’s dive into the details and explore how this impacts you.
What It Really Means When the Fed Cuts Rates
During the Federal Reserve’s September meeting last week, they lowered the federal funds rate by 50 basis points. This is the first rate drop since 2020 and is welcome news for consumers, homeowners, and future home buyers. However, it doesn’t mean that mortgage rates dropped by half a point.
The federal funds rate is the interest rate banks charge each other for overnight loans, not the rate they charge consumers. While changes in the fed rate influence consumer rates, including credit cards, car loans, and mortgages, it’s important to understand that the fed rate and mortgage rates are not the same thing.
So, even though the Fed cut its rate by 50 basis points, mortgage rates won’t necessarily decrease by the same amount immediately after.
How This Affects Mortgage Rates
Like the stock market, mortgage rates fluctuate daily, regardless of the federal funds rate. That’s why mortgage rates have been moving up and down over the past few years, even when the Fed hasn’t made changes.
In fact, mortgage lenders anticipated the Fed’s rate cut, and mortgage rates started declining months before the official announcement. They even dropped further in the week leading up to the decision.
The mortgage rate you receive depends on many factors, including the type of home you’re buying, its location, your down payment, and your credit score. If you’re considering purchasing a home or refinancing your current one, I can connect you with local lenders to help you compare rates.
What It Means for You
For Buyers: If you’ve been waiting to buy a home, the recent rate cut might have caught your eye. Mortgage rates are currently more favorable than they were last year, with a drop of over one percentage point. This means your monthly mortgage budget can stretch further, allowing you to consider homes that may have been out of reach before.
While it’s tempting to wait for rates to bottom out, keep in mind that lower rates typically attract more buyers, increasing competition. This could drive up home prices. Starting your home search sooner may give you an advantage, and you can always refinance later when rates are even lower.
For Sellers: If you’ve been thinking about selling your home, this may be the perfect opportunity. Typically, the fall market is slower than the spring, with fewer motivated buyers. But this year could be different due to the Fed’s rate cut and the ongoing downward trend in mortgage rates.
Buyers who have been holding off are starting to re-enter the market, eager to take advantage of the lower rates. This surge in demand could help you sell your home faster and at a favorable price. If you’ve felt “stuck” because the next home on your wishlist was unaffordable, the current market could help you get unstuck.
For Homeowners: If you’re considering refinancing, it might be wise to hold off for now. Many experts predict that rates will continue to drop over the next few months. While no one can predict the future, it could pay off to wait a bit longer before spending money on a refinance. Remember, even lenders who claim “no cost” refinances are getting paid one way or another, whether through a slightly higher interest rate or rolling costs into your loan.
Whenever you decide to refinance, I’m happy to recommend a trusted lender, review any offers you receive, and help you crunch the numbers to ensure that refinancing is worth it for you.
Let’s Discuss Your Options
There’s a lot to consider when it comes to interest rates, which is why I encourage my clients to reach out early, even if you’re not ready to buy, sell, or refinance just yet. Each situation is unique, and I’m here to help you explore all your options to make the best decision for you.
Let’s chat and create a plan that works for your specific needs! I look forward to helping you navigate this exciting time.
And as you can see there’s a lot to learn when it comes to interest rates. So here’s a few other articles about this topic:
Why the Interest Rate You See Online Is NOT the One You’ll Get
Buyers
Homeowners
