Mortgage rates declined last week

The average mortgage interest rate for a standard 30-year fixed mortgage last week was 6.38%, a decrease of 0.11 percentage points from the previous week’s 6.49%, according to Bankrate.

Thirty-year fixed mortgages are the most commonly sought out loan term. A 30-year fixed rate mortgage has a lower monthly payment than a 15-year one, but usually has a higher interest rate.

The average mortgage interest rate for a standard 15-year fixed mortgage was 5.76%, a decrease of 0.08 percentage points from the previous week’s 5.84%, according to Bankrate.

Fifteen-year fixed rate mortgages come with a higher monthly payment compared to its 30-year counterpart.

However, usually interest rates are lower and you will pay less total interest because you are paying off your loan at a faster rate.

The average rate on a 5/1 adjustable rate mortgage (ARM) is 6.09%, with no change from last week.

With an ARM, you will most often get a lower interest rate than a fixed mortgage for say, the first five years.

But you could end up paying more or less after that time depending on your loan terms and how that rate follows the market.

When picking a mortgage, it is important to pick out a loan term or payment schedule.

Usually you will be offered a 15 or 30-year loan term, but it is not uncommon to see 10, 20, or 40-year mortgages, according to CNET.

Mortgages can be fixed-rate or adjustable-rate. Interest rates in fixed-rate mortgages are set in stone for the duration of the loan.

Adjustable-rate mortgages only have interest rates set for a certain period of time before the rate adjusts annually based on the market.

Changing conditions 

Mortgage rates might not fall as precipitously this month, even with the likelihood of a Federal Reserve rate cut. With inflation cooler, the Fed is primed to cut rates at its next meeting ending Sept. 18 – the first reduction since the pandemic.

While the Fed doesn’t directly set mortgage prices, it does influence them, and they’ve been trending down as cuts loom.

“Mortgage rates will trend lower in September, but it will be an uneven journey,” said Greg McBride, CFA, Bankrate’s chief financial analyst. “Economic data, such as a weak jobs report, would spur more movement in mortgage rates than any response to a long-expected Fed interest rate cut.”

“Mortgage rates will bump around over the next few weeks, and I expect rates to be between 6.2% and 6.4% at the end of the year.,” said Lisa Sturtevant, chief economist at Bright MLS.

Mortgage rates have already started to pull back, with the 30-year loan averaging 6.48% as of Aug. 28, according to Bankrate’s weekly lender survey.

Still, rates might not come down as low as some homeowners hope, as forecasters previously baked in a September rate cut. In fourth quarter 2024 outlooks, Fannie Mae analysts anticipate 30-year rates at 6.4%, while the Mortgage Bankers Association predicts 6.5%. The National Association of Realtors projects 6.7%.

Current trends

The average interest rate on a 30-year fixed mortgage was 6.48% as of Aug. 28, according to Bankrate’s survey of lenders. Rates haven’t been this low since 2023.

Higher mortgage rates have kept homeowners locked in to lower-cost loans. Meanwhile, the median home price surged to a record $422,600 in July, according to the National Association of Realtors.

“Lower mortgage rates make it more affordable for buyers to purchase a home,” Sturtevant said. “But lower rates also make it easier for existing homeowners to sell. Nationwide, there is an average three percentage point gap between rates on new and existing mortgages. This rate gap has kept some homeowners from listing their home for sale. As rates fall, the rate gap is going to be less of an obstacle to sellers.”

“Continued improvements in mortgage rates are expected to drive more home sales,” said Skylar Olsen, chief economist at Zillow. “However, we are also entering a period of uncertainty for reasons that are often overlooked by econometric models: the behavior of buyers who may be holding out for further rate drops with growing confidence in an upcoming Fed rate cut, and the significant uncertainty surrounding the approaching elections.

“These factors may influence major decisions and have an impact on existing home sales as we near the end of the year.”

What to do  

• Improve 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. The best mortgage rates go to borrowers with the highest credit scores, usually at least 740.

• Save up for a down payment. Putting more money down upfront can help you obtain a lower mortgage rate, and if you have 20%, you’ll avoid mortgage insurance, which adds costs to your loan. If you’re a first-time homebuyer and can’t cover a 20% down payment, there are loans, grants and programs that can help. The eligibility requirements vary by program, but are often based on factors like your income.

• Understand 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. Not sure how to figure out your DTI ratio? Bankrate has a calculator for that.