Introduction to Mortgage Rates
The average rate for a 30-year fixed mortgage seems poised to hold near 6.75% for the rest of the year. However, significant economic uncertainties could still push rates up or down in the coming months. Housing market experts consistently point to two major influences: the economic ramifications of the Trump administration’s policies and the Federal Reserve’s pace of interest rate cuts.
Economic Uncertainties and Mortgage Rates
On July 29-30, the Fed plans to keep borrowing rates the same at its fifth monetary policy meeting this year. Though markets currently expect a Fed cut in September, that’s not a guarantee given ongoing political and economic instability. "Even a September move may require more definitive evidence that the economy is cooling," said Odeta Kushi, deputy chief economist at First American Financial Corporation. "For the housing market, it means the rate-cutting cycle many were hoping would ignite the 2025 homebuying season is still on hold."
How the Fed Affects Mortgage Rates
Although the central bank doesn’t directly dictate mortgage rates, its policy decisions indirectly influence consumer borrowing costs, including for mortgages, over the long term. Mortgage rates, which are primarily tied to 10-year Treasury yields in the bond market, are also sensitive to other factors, including investor sentiment. Ultimately, it’s unlikely that mortgage rates will shift significantly outside the 6.5% to 7% range unless the economy slows significantly or unemployment increases sharply.
The State of the Housing Market
The problems afflicting the housing market will take time to solve. Apart from steep mortgage rates, high home prices and limited inventory have all but barred buyers from purchasing and owners from refinancing or selling. Home sales fell to a nine-month low in June as the national median existing-home price jumped to a new high of $435,300. Plus, with recession risks still on the horizon, people who are nervous about finances will be more reluctant to take on mortgage loan debt.
Tariffs and the Fed
Following signs of slowing inflation in late 2024, the Fed implemented three interest rate cuts but has since adopted a more cautious wait-and-see approach this year. Policymakers have held interest rates steady amid market fluctuations, a stance it’s expected to uphold at its Federal Open Market Committee meeting next week. Today’s complex economic picture presents a challenge for the Fed, which is tasked with maintaining maximum employment and containing inflation.
What Would Cause Mortgage Rates to Fall?
While most forecasts have average 30-year fixed mortgage rates holding above 6.5% through the end of the year, that could always change. The most recent jobs report appeared steady on the surface, yet several underlying indicators, including a rise in jobless claims, point to a weakening labor market. "Small businesses, which are often more vulnerable to shifts in trade policy and borrowing costs, are also dialing back hiring plans amid tariff concerns," Kushi said. If these trends eventually translate into higher unemployment, it would likely prompt the central bank to reduce borrowing costs.
Strategies for Saving on Mortgage Rates
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: Your credit score will help determine whether you qualify for a mortgage and at what interest rate. 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. If you can afford it, a down payment of at least 20% will also eliminate private mortgage insurance.
- Shop for mortgage lenders: Comparing loan offers from multiple mortgage lenders can help you negotiate a better rate. Experts recommend getting at least two to three loan estimates from different lenders.
- Consider mortgage points: You can get a lower mortgage rate by buying mortgage points, with each point costing 1% of the total loan amount. One mortgage point equals a 0.25% decrease in your mortgage rate.
Conclusion
In conclusion, the current state of mortgage rates is heavily influenced by economic uncertainties and the Federal Reserve’s policy decisions. While it’s unlikely that mortgage rates will shift significantly in the near future, there are strategies that can help make buying a home more affordable. By building your credit score, saving for a bigger down payment, shopping for mortgage lenders, and considering mortgage points, you can save up to 1.5% on your mortgage rate. As the housing market continues to evolve, it’s essential to stay informed and adapt to changing circumstances to achieve your homeownership goals.
