When will interest rates on mortgages decrease? What experts think

Interest rates are expected to decline later this year, according to many organizations and experts.

The Federal Reserve has raised interest rates ten times since March 2022, which has had a negative impact on the housing market. According to the National Association of Realtors, existing home sales decreased by 3.4% in April. Home sales decreased by 23.2% during the past year, while median home prices decreased by 1.7% to $388,800. However, the recent halt in rate increases has offered some potential purchasers some hope that things could be getting better.

Prospective Home-buyers

Prospective home-buyers and homeowners who want to refinance are finding it harder to acquire homes due to the higher interest rates.

In the second case, high interest rates make it more difficult for homeowners to refinance at rates that are less expensive than their current mortgage. During the pandemic, when loan rates were at all-time lows, ranging from 0% to 0.25%, many homeowners refinance their homes. The benchmark range, in contrast, is now between 5% and 5.25%, which is the highest level in 16 years.

Nobody knows when mortgage rates will turn around, but we wanted experts to weigh in. Home-buyers and homeowners alike can better grasp their alternatives by being aware of the direction interest rates are moving.

Many people are cautiously optimistic following the recent pause in interest rate rises, however there is still a good likelihood that rates will rise again later this year. In keeping with this, groups like Fannie Mae and the Mortgage Bankers Association anticipate a drop in the 30-year fixed-rate average rate throughout 2023 and into the first quarter of 2024.

According to Peter Idziak, senior associate at Polunsky Beitel Green, “the Fed has recently signaled that it may forego a rate increase at its next meeting while it evaluates the impact its recent increases have had on inflation, but the market still expects the Fed to continue raising rates later this year.” However, if the Fed stops raising rates because the facts show that the economy is contracting and that inflation is declining even more, I would anticipate a decline in mortgage rates in the second half of 2023.

A decrease in interest rates might not occur for several months, according to First American Financial Corp. . According to Fleming, that may happen in 2024, but that would depend on the Fed’s decision to raise rates in the second half of the year. “And even if they do, the rates won’t return to what they were in the past. Mortgage interest rates of 6% used to be typical, and that is now more reasonable to anticipate.

Adam Sharif, the creator and chief strategist of the commercial real estate investors’ portal nxtCRE, concurs. “If rates do decline, it will be next year and not by much,” he continues. Historical standards view the interest rates of today as normal.

Uncertain about the mortgage rate you would be eligible for in the current market? You may easily learn more right now.

Is now the right time to buy a house?

While rising interest rates disadvantage many home-buyers, they can still present a good opportunity for others to buy a home, particularly investors. If you intend to hold onto a property as a long-term investment, the home’s value may appreciate significantly over time, potentially outweighing the costs of higher interest rates. And if you anticipate a drop in interest rates, you can always choose to refinance your mortgage at a lower rate when available.

Marry the house, but date the rate

“There is some truth to the saying ‘marry the house, but date the rate,'” adds Idziak. “Home inventory is still very constrained in many areas, so a potential buyer who finds a home she loves may be better served by purchasing now even with rates elevated and hope to refinance in two to three years when rates may be lower.”

Similarly, in some scenarios, it may make sense to buy a property for rental purposes, even in a high-interest environment. Depending on rental rates in your area, among other factors, the income generated from your rental could offset a portion, if not all, of your mortgage expenses. Additionally, you might be able to leverage the tax benefits of owning a rental property.

Is it a good idea to refinance my mortgage?

Refinancing a mortgage means you’re replacing your existing home loan with a new one, ideally with a lower interest rate. With rates around double what they were in 2020, refinancing may not be the best option for anyone who took out their existing mortgage before the Fed began its aggressive rate hike schedule.

“For borrowers who refinanced during the historically low rates from 2020 to 2022, it might not make sense to refinance in the current rate environment,” says Idziak. “However, borrowers that can take advantage of the increase in home values over the last few years may still find it advantageous to refinance in order to tap equity in the home or to remove private mortgage insurance.”

There are other scenarios in which refinancing might prove beneficial, such as:

If you want to pay off your mortgage loan sooner. Refinancing your home loan from a 30-year to a 15-year term could potentially result in significant overall cost savings, despite higher interest rates. Keep in mind, shorter loan terms tend to have lower interest rates than mortgages with longer terms.

If you want to convert an adjustable-rate mortgage (ARM). Homeowners with adjustable rate mortgages (ARMs) who face the potential of fluctuating monthly payments might consider transitioning to the stability of a fixed-rate mortgage.

If you want a lower interest rate. Again, this may not be an option for many homeowners. Still, some homeowners may have higher interest rates on their existing mortgages than lenders currently offer. For example, they may have secured their mortgage when rates were higher, or perhaps a lower credit score at the time of their loan application resulted in a high-interest mortgage.

Watching interest rate trends can help home-buyers and homeowners better understand the market so they don’t make decisions blindly. However, attempting to time the market isn’t always the best strategy for any type of investing, including real estate. Basing decisions based on your budget and goals may be a better approach. Before you make a decision, do your due diligence and run the numbers to determine how much you’ll pay and what you could save.