Introduction to Mortgage Rates
The U.S. economy is going strong, inflation is holding above the Federal Reserve’s target rate of 2 percent, and the central bank has yet to lower its benchmark rate in 2025. This combination of factors suggests that mortgage rates aren’t likely to move much this month. According to Greg McBride, Bankrate’s chief financial analyst, "The Fed is not in a rush to cut interest rates, and there is still a lot of uncertainty about what impact tariffs will have on consumer inflation." As a result, mortgage rates are expected to remain relatively stable.
Current Mortgage Rate Trends
Mortgage rates have been held aloft by the combination of a still-strong economy, inflation fears, and growing concerns about a rising federal deficit. The average 30-year mortgage rate began declining from 7 percent last summer, fell as low as 6.2 percent in September, then quickly reversed course, tracking back above 7 percent by the end of 2024. As of July 30, rates stood at 6.75 percent. The Fed doesn’t directly set mortgage prices, but it does influence them. The central bank cut its benchmark rate three times last year, and its next meeting is in September.
Predictions for Mortgage Interest Rates
The possibility of sub-6 percent mortgage rates has grown fainter. Fannie Mae predicts rates will edge down to 6.4 percent by the end of the year, while the Mortgage Bankers Association expects 30-year rates will barely decrease, to 6.7 percent by the end of 2025. According to Melissa Cohn of William Raveis Mortgage, "The good news is that the economy is chugging along. But with inflation ticking higher, the Fed has no reason to cut rates." The next rate cut may not happen until the end of the year.
What to Do If You’re Getting a Mortgage This Year
If you’re planning to get a mortgage this year, there are several steps you can take to improve your chances of getting a good rate. These include:
- Improving your credit score: A lower credit score won’t prevent you from getting a loan, but it can make all the difference between getting the lowest possible rate and more costly borrowing terms.
- Saving up for a down payment: Putting more money down upfront can help you obtain a lower mortgage rate, and if you have 20 percent, you’ll avoid mortgage insurance, which adds costs to your loan.
- Understanding your debt-to-income ratio: Your debt-to-income (DTI) ratio compares how much money you owe to how much money you make, specifically your total monthly debt payments against your gross monthly income.
Frequently Asked Questions
Some common questions about mortgage rates include:
- How are mortgage rates determined? Mortgage rates are not directly set by any one entity. Instead, mortgage rates grow from a complicated mix of economic factors. Lenders typically set their rates based on the return they need to make a profit after accounting for risks and costs.
- When should I refinance my mortgage? Deciding when to refinance is based on many factors. If rates have fallen since you took out your mortgage, refinancing might make sense. A refi can also be a good idea if you’ve improved your credit score and could lock in a lower rate.
Conclusion
In conclusion, mortgage rates are expected to remain relatively stable in the coming months, due to a strong economy and inflation holding above the Federal Reserve’s target rate. While there are predictions that rates may edge down slightly by the end of the year, it’s essential to keep in mind that these are just predictions, and the actual rates may vary. If you’re planning to get a mortgage this year, it’s crucial to take steps to improve your credit score, save up for a down payment, and understand your debt-to-income ratio to increase your chances of getting a good rate.
