Here’s what homeowners,buyers need to know about upcoming rate cuts

Source: CNBC

The Federal Reserve is poised to make the first interest rate cut in years this fall, which can influence mortgage rates to go down. Even small cuts in rates could make a meaningful difference in what a homebuyer will pay. According to the CME’s FedWatch measure of futures market pricing, there is a likelihood of quarter-point reductions in September, November and December. That along with further cuts in 2025 could bring the Fed’s benchmark fed funds rate to below 4 percent by the end of next year, according to some experts.

While mortgage rates are fixed and mostly tied to Treasury yields and the economy, they are partly influenced by the Fed’s policy. Home loan rates have already started to come down, in part induced by the Fed putting the brakes on rate increases. The 30-year fixed rate mortgage declined to 6.78 percent on July 15, down from 7.22 percent on May 2, according to Freddie Mac data. Chen Zao, economic research lead at Redfin, said that the first rate cut is almost entirely priced into financial markets already, especially the bond market. So the first cut probably won’t affect mortgage rates much if at all.

Refinancing is starting to tic up, too, according to Zhao. Refinance activity on existing home loans was up 15 percent from the previous week, reaching the highest level since August 2022, according to the Mortgage Bankers Association. It was 37 percent higher than a year ago. Experts say that in order to benefit from refinancing, the prevailing rate should be at least 50 basis points below your current rate. A basis point is one-hundredth of a percentage point.