3 Mistakes You Must Not Make When Mortgage Rates Drop
Written by
Adam Palasciano
Edited by
Nicholas Morine
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It’s no news that buying a home in the U.S. these days has become very expensive.
As reported by Redfin, the median sale price for a U.S. home was $433,229 as of August 2024. This represents a 3.1% year-over-year median price increase. To put this into perspective, the median sale price was just about $304,000 in March 2020 at the onset of the pandemic.
However, interest rates are steadily dropping — and they may drop even further if the Fed cuts interest rates at its next meeting this week.
According to The Federal Reserve Bank of St. Louis, the 30-year fixed rate mortgage average in the U.S. currently hovers at around 6.2% as of Sept. 12, 2024. This is down from a recent 7.79% high in October 2023.
While interest rates are dropping, there are three mortgage mistakes to avoid once interest rates are cut again, according to CBS News and GOBankingRates.
1. Jumping To Buy Too Early Even if You Can’t Afford It
If you’ve been saving and planning to buy your first home for a long time, you might be getting excited that interest rates are dropping.
But, be careful not to make a hasty decision and purchase a home you can’t afford. Just because you have enough saved for the down payment and you get approved for a loan, you’ll need to carefully consider the cost of the total monthly payment before deciding to move forward.
As a general rule, it’s not a smart idea to spend more than 30% of your income on housing each month.
2. Waiting Until Interest Rates Drop Even More Later This Year
Yes, you can certainly wait longer to see if mortgage rates will drop further.
At the same time, if rates continue to fall, more prospective buyers will likely enter the housing market. This will most certainly result in higher home prices due to increased demand for an already limited housing stock. So, waiting longer may not be the best financial move.
3. Assuming That Mortgage Interest Rates Will Match the Federal Funds Rate
A decrease in the federal funds rate will ultimately correlate to lower mortgage rates.
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However, mortgage rates won’t necessarily drop further in the near term just because the federal funds rate drops. Many lenders tend to include predicted rate cuts on their current rate offers. So a 0.25-0.50 basis point reduction may not lead to an equivalent decrease in mortgage rates right now.
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