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3 Minute Guide To Interpreting, Analyzing, and Reacting to Home Loan Interest Rate Trends

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Making sense of federal rate hikes and slowing economic conditions can be challenging for prospective home buyers or owners interested in refinancing. Here's what to know about the current home loan interest rate trend.

Economic Indicators and Mortgage Rates

Before planning a home purchase or refinancing a mortgage, it's important to understand the main factors that influence home loan rates:
  • The Fed Funds rate is a tool the Federal Reserve Bank uses to influence consumers' behavior and control inflation. The Fed Funds rate is currently at 5.33%, the highest since 2001.
  • Due to inflation, the money banks and credit unions lend can now lose part of its value when the borrower pays the loan back. Rising mortgage interest rates help offset this phenomenon.
  • Real estate market conditions are another critical factor. Currently, we're seeing sales slow down in the South and other regions, with a nationwide 2.2% drop in July 2023. However, rates remain high due to below-average inventory levels in Florida.
  • The bond market and the demand for mortgage-backed securities can also influence home loan rates.
  • Lastly, each borrower's profile and the risk they represent significantly impact the rates lenders can offer.
Interpreting Rate Trends

The current economic situation makes the home loan interest rate trend difficult to predict. The Fed Funds rate has seen seven hikes in a row, contributing to rising mortgage rates. However, home sales have slowed, prompting lenders to offer more competitive rates. The refinance boom that peaked during Q2 2021 has also slowed down.

Experts predict that home loan rates will remain above 6% until the end of the year. Rates will likely remain high until inflation is under control.

Global economic conditions still show that most sectors face challenges, but economic recovery could happen by 2025. A more robust economy could make the stock market more appealing and reduce demand for mortgage-backed securities. The real estate market could also see an uptick in active buyers, increasing mortgage rates.

Buyers should keep an eye on interest rates, but home prices and closing costs are just as important. Buying a home while home loan rates are high can seem disadvantageous, but it can put buyers in a position to negotiate a lower buying price or ask the seller to cover a part of the closing costs in some markets. Some lenders also have promotional offers designed to help with a part of the closing costs, which can account for 2 to 5% of the price of a home.

Reacting to Rate Trends

For prospective buyers, sellers, and those thinking about refinancing, the current home loan interest rate trend calls for adopting a strategic approach:
  • While broad economic trends influence mortgage rates, local market trends are just as important. For those looking to buy in Florida, the local market is currently favoring sellers due to limited inventory. While house prices slightly dropped over the summer, this trend is in the process of reverting.
  • Waiting until rates drop can seem like a good strategy. However, favorable conditions will likely cause a quick shift in the market as several buyers who delayed their home purchase start looking for a home. This shift could cause a hike in home prices and interest rates.
  • It's possible to offset high mortgage rates by shopping around and comparing what different lenders offer. Buying points, saving for a larger down payment, and building a diverse and robust financial profile can help secure more competitive rates.
Current mortgage rates aren't at their lowest, but it's possible to secure a better rate by refinancing in the future. Prospective buyers should also consider fluctuating or floating-rate mortgages. These products typically have an initial period of five to seven years with a fixed rate. After this initial period, the lender will recalculate the rate regularly.

Mortgage Planning and Rate Lock Strategies

If you're in the market for a home or want to refinance an existing mortgage, you should actively monitor fluctuating mortgage rates. For those in the early stages of their home search, getting pre-approved is an excellent way to explore the rates different lenders can offer.

However, lenders calculate mortgage rates daily. Requesting a rate lock is the only way to guarantee the rate won't change. Lenders offer rate locks for 30 or 60 days. With the average home sale taking 45 days to close, you should look into locking your home loan rate as soon as you have a closing date.

Refinancing at a future date can also be part of your home-buying plan. Borrowing at a higher rate now to benefit from a low home price and refinancing your home loan in the future can be an intelligent strategy.

Get Help With Your Home-Buying Plan

Mortgage rates are likely to remain high for the foreseeable future. This trend increases the cost of borrowing, and Florida buyers also have to account for a market with limited inventory and rising home prices.

The mortgage experts at Power Financial Credit Union can help you navigate the current home-buying and refinancing markets. Learn more about home buying with our free guide, or contact us with your questions!