Introduction to Mortgage Rates
Mortgage rates have been stuck between 6.5% and 7% for several months, and it’s unlikely that they will change anytime soon. The Federal Reserve is expected to keep borrowing rates the same at its upcoming monetary policy meeting, which will indirectly influence consumer borrowing costs, including mortgages.
How the Federal Reserve Affects Mortgage Rates
The Federal Reserve does not directly dictate mortgage rates, but its policy decisions can influence them. Mortgage rates are primarily tied to 10-year Treasury yields in the bond market and are sensitive to other factors, including investor outlook for future Fed moves. Economists will be closely listening to Fed Chair Jerome Powell’s post-meeting remarks for any hints about rate cuts later this year.
Why the Fed is Holding Off on Interest Rate Cuts
The Fed is tasked with maintaining maximum employment and containing inflation. Although inflation showed signs of slowing in late 2024, the picture is more complex this year. The Fed has lowered rates three times, but it’s unlikely to cut rates again unless the economy slows significantly or unemployment increases sharply. Tariffs are also a wild card for the mortgage market and the broader economy, and their impact is still unclear.
The Impact of Tariffs on Mortgage Rates
Tariffs are widely expected to drive up prices, and we’re already seeing the effects. In June, inflation ticked up to 2.7%, which is still above the Fed’s annual target rate of 2%. As a result, experts say the central bank has good reason to keep rate cuts on pause. Fewer interest rate cuts combined with the recently passed budget bill, which is expected to significantly boost government debt deficits, are likely to keep upward pressure on longer-term bond yields and mortgage rates.
When Will Mortgage Rates Fall to 6%?
Earlier mortgage projections had rates dropping to around 6% by the end of 2025, but now mortgage rates are expected to dip only slightly. Fannie Mae’s June Housing Forecast says the average rate for a 30-year fixed mortgage will reach 6.5% by year’s end. Generally, housing market experts don’t see home loan rates falling below 6% until late 2026 at the earliest.
Can You Get a Lower Mortgage Rate?
While market forces are out of your control, there are ways to make buying a home slightly more affordable. Here are some proven strategies that can help you save up to 1.5% on your mortgage rate:
- Build your credit score: A credit score of 740 or higher will help you qualify for a lower rate.
- Save for a bigger down payment: A larger down payment allows you to take out a smaller mortgage and get a lower interest rate from your lender.
- Shop for mortgage lenders: Comparing loan offers from multiple mortgage lenders can help you negotiate a better rate.
- Consider mortgage points: You can get a lower mortgage rate by buying mortgage points, with each point costing 1% of the total loan amount.
Conclusion
In conclusion, mortgage rates are unlikely to change anytime soon, and it’s essential to understand the factors that influence them. The Federal Reserve’s policy decisions, tariffs, and inflation all play a role in determining mortgage rates. While it’s unlikely that mortgage rates will fall below 6% in the near future, there are strategies that can help you save up to 1.5% on your mortgage rate. By building your credit score, saving for a bigger down payment, shopping for mortgage lenders, and considering mortgage points, you can make buying a home slightly more affordable.
