Mortgage interest rates expected to drop in 2024—here's how much you could save on monthly payments (2024)

FAQs

Mortgage interest rates expected to drop in 2024—here's how much you could save on monthly payments? ›

Mortgage rates are expected to decrease by nearly 1% by year's end — from 6.6% down to as little as 5.75% — according to recent housing forecasts. That's good news for buyers, as the decrease would reduce their monthly mortgage costs by roughly $200 for a median-priced home.

While McBride had expected mortgage rates to fall to 5.75 percent by late 2024, the new economic reality means they're likely to hover in the range of 6.25 percent to 6.4 percent by the end of the year, he says.

The Federal Reserve is still expected to cut interest rates between one and three times in 2024. That's potentially due to inflation trending closer to the Fed's 2% goal, or because the job market softens.

Here's where three experts predict mortgage rates are heading: Around 6% or below by Q1 2025: "Rates hit 8% towards the end of last year, and right now we are seeing rates closer to 6.875%," says Haymore. "By the first quarter of 2025, mortgage rates could potentially fall below the 6% threshold, or maybe even lower."

"CD rates will most likely drop and drop substantially in 2024," says Robert Johnson, professor of finance at Heider College of Business at Creighton University. "The biggest reason is the likelihood of Federal Reserve rate cuts later this year."

The 10-year treasury constant maturity rate in the U.S. is forecast to decline by 0.8 percent by 2026, while the 30-year fixed mortgage rate is expected to fall by 1.6 percent. From seven percent in the third quarter of 2023, the average 30-year mortgage rate is projected to reach 5.4 percent in 2026.

The rate on a 15-year mortgage is generally lower than on a 30-year mortgage. The average APR on a 15-year term was about 0.75 percentage points lower than that on a 30-year term, as of April 2024.

The Federal Reserve is meeting again from April 30 to May 1, 2024, and consumers are looking to see if interest rates will be lowered. At its March 2024 gathering the Fed decided to keep the federal funds target rate at 5.25% to 5.5%, where it has remained since July 2023.

Also, mortgage rates are still much higher than we've been used to in recent years. In May 2024, the average 2 year fixed rate is 4.74%. While this is a significant drop from its July 2023 peak of 6.86%, it's still much higher than December 2021 when was 2.34%. Find out more in our guide to the Best mortgage rates.

Will mortgage rates ever be 3% again? ›

Lawrence Yun, chief economist at the National Association of Realtors, even told CNBC that he doesn't think mortgage rates will reach the 3% range again in his lifetime.

Projected Interest Rates in the Next Five Years

Then, 3.5% in the third, and 3.25% in the final quarter of 2024. In 2025, ING predicts a further decline to 3%. The University of Michigan inflation expectations in the US for the five-year outlook were revised slightly higher to 3% in August 2023.

Importantly, the SEP projects that the Federal Funds rate will fall to 4.6% in 2024, 3.9% in 2025, and 3.1% in 2026. This implies three 25 basis point rate cuts in 2024. We are therefore lowering our Fed Funds forecast to four 25 bps cuts this year and another four 25 bps cuts in 2025.

Mortgage rates are expected to go down in 2024 once inflation slows and the Fed is able to start cutting its benchmark rate, which has an impact on all types of consumer borrowing costs.

The national average CD rate on a 6-month term is 1.57% APY (Annual Percentage Yield), according to the FDIC. However, there are much higher interest rates on 6-month CDs right now. The best CD rate for a 6-month term is 5.55% APY available at Newtek Bank. We check rates daily to find the best rates for 6-month terms.

Lower Introductory Interest Rates

During the initial fixed-rate period, which can range from 1 – 10 years, the interest rate on an ARM is typically lower than the prevailing rates for fixed-rate mortgages. This lower rate results in lower monthly mortgage payments during the initial period.

A home equity line of credit, or HELOC, is a second mortgage that gives you access to cash based on the value of your home. (It can also be a primary mortgage if you own your home outright.) You borrow against your equity, which is the home's value minus the amount you owe on the primary mortgage.

Mortgage rates are determined by individual factors like your credit scores, loan type and location, but they shift more dramatically because of broader factors like economic and market conditions.

Expert-Verified Answer

Option B is correct, the interest rate may change depending on the condition of the economy is true of an adjustable rate mortgage.