What Your Savings Would Look Like If Mortgage Rates Drop Little by Little
Written by
Nicole Symon
Edited by
Jordan Rosenfeld
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Since 2021, mortgage rates have increased dramatically in the United States. The average 30-year fixed mortgage rate peaked at 7.5% in November 2023 and has gone down only slightly since then, according to data from the Federal Reserve Bank of St. Louis.
However, the Federal Reserve is now signaling that it may cut its rates in September, which would bring mortgage rates down even lower, reported CNN. If mortgage rates drop, monthly payments on the same loan amount would be more affordable.
Here’s how much you would save if mortgage rates do go down.
Also here are creative ways homebuyers are paying lower mortgage rates in 2024.
Current Mortgage Rates and Median Home Price
The median home price in the U.S. was $412,300 in July 2024. Assuming you put 20% down, your mortgage principal would be $329,840.
Currently, the average 30-year fixed mortgage rate is 6.73%. Using these numbers, your monthly mortgage payment would be $2,135 — not including any property tax, home insurance or homeowner’s association fees.
Experts often recommend keeping your housing costs below 30% of your gross income. Using that guideline, you would need to make around $85,000 per year to afford the median home at the current mortgage rates.
If Rates Fall 1 Percentage Point
Using the same $412,300 home price, how much would you save if mortgage rates were to decrease by one percentage point? That would put rates at 5.73%, which is around the average from September 2022.
In that case, your mortgage payment without tax and insurance would be $1,921 monthly. You’d save more than $200 per month compared to the current rates.
Someone making around $77,000 per year could then afford the median home.
If Rates Fall 2 Percentage Points
But what if rates fall even more, decreasing two percentage points from the current average? In that case, the average mortgage rate would be 4.73%, and your monthly payment would be significantly lower.
The monthly payment on the same loan amount — $329,840 — would go down to $1,717. That’s over $200 less than the monthly payment at a 5.73% rate and over $400 less than the payment at the current rates.
Rates falling two percentage points would save homebuyers more than $5,000 per year, assuming a home price of $412,300. If you make around $69,000 per year, you’d be able to afford the median home at these rates.
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Current Mortgage Rates and a $600,000 Home
There are plenty of areas in the country where it’s hard to find a home for $400,000. This example will focus on a $600,000 home instead.
At the current 6.73% average mortgage rate, your monthly payment on a $600,000 home would be $3,107. That’s assuming you make a 20% down payment of $120,000, choose a 30-year fixed-rate mortgage and exclude taxes and insurance.
You’d need to make at least $124,000 per year to afford this home with the current rates.
If Rates Fall 1 Percentage Point
Assuming mortgage rates fall one percentage point and everything else stays the same, your monthly payment on this home would be $2,795. If mortgage rates fall from 6.73% to 5.73%, you’d save more than $300 per month. Over a year, you’d save almost $4,000.
The salary necessary to afford this home at these lower rates would be $112,000.
If Rates Fall 2 Percentage Points
If rates were to fall further, to 4.73%, your new monthly payment on a $600,000 home would be $2,498. Compared to the current mortgage rates, you’d save more than $600 per month and more than $7,000 annually.
Someone making around $100,000 per year could afford this home at these rates.
Current Mortgage Rates and a $250,000 Home
If you buy a cheaper home, mortgage rate changes don’t affect your monthly payment as dramatically. Still, you’ll save money each month if mortgage rates fall.
At the current average rate of 6.73%, your monthly mortgage payment on a $250,000 home would be $1,295. That’s for a 30-year fixed-rate mortgage with a $50,000 down payment and no taxes or insurance.
You’d need to make around $52,000 annually to afford this home with the current mortgage rates.
If Rates Fall 1 Percentage Point
If rates fall one percentage point, your monthly payment would decrease to $1,165. You’d save more than $100 per month compared to the current average rate. Over the 30-year life of the loan, that adds up to more than $36,000 in savings.
If Rates Fall 2 Percentage Points
If rates fall two percentage points, from 6.73% to 4.73%, your new monthly payment would be $1,041. That’s more than $200 cheaper than your monthly payment at the current mortgage rates.
