The Fed (Federal Reserve Board) decided on Sept. 18 to drop its benchmark interest rate by half a percentage point. After yesterday’s announcement, today’s 30-year mortgage rate is 6.09%. That’s quite a large drop considering rates have been as high as 7.8% in recent years. Rates had already begun to creep down some before the Fed’s meeting (find more info on the Fed here). Lenders were anticipating the drop due to unemployment numbers, yield on the 10-year bond, and inflation.
What Do Lower Interest Rates Mean for Home Buyers?
At a 7.8% interest rate, a $300,000 home with 10% downpayment, the monthly payment is around $1943 (not including taxes and insurance).
At a 6.09% interest rate, a $300,000 home with 10% downpayment, monthly payment is around $1634 (again, without taxes or insurance).
I use the mortgage calculator on Nerd Wallet mortgage for quick and dirty payment estimations.
The $309 difference in mortgage payment doesn’t really seem like a lot. But when you take a look at the loan over its 30-year life, the numbers are striking. At 7.8% your total loan payments (interest plus principal) will be $699,714. At 6.09% they will be $588,399. That’s a difference of $111,315.
Predicting Future Interest Rates
There are some predictions that rates will go down more when Fed meets again in November, and I think between now and then, lenders will further adjust their rates favorably for buyers. So should you buy now if you’ve been waiting? Yes, and there are several excellent reasons.
Smaller Mortgage Payments
Lower rates will mean you will have a smaller monthly mortgage payment or you will be able to afford a more expensive home.
Home Prices Still Rising
Don’t wait for prices to come down. The median price of a home in Central Florida was $384,500 in August 2024, that’s a 2.5% increase from the median in 2023. Prices are still rising.
Buyers Market
Right now, homes stay on the market for an average of 57 days before getting a contract. That’s a 39% increase from last year. It’s not a seller’s market anymore.
High Inventory, For Now
The number of homes for sale is up 88% from this time last year. More inventory means more opportunity. But, as interest rates move down, more buyers will start shopping, reducing the supply of available homes. And we’re back to the supply and demand dance that drives up prices.
