Mortgage and refinance rates for August 2, 2023 trend down from July.

Mortgage and refinance rates for August 2, 2023 trend down from July.

Mortgage Rates: Will They Finally Fall in August?

Mortgage rates

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Could August be the month when mortgage rates finally fall? That’s the question on the minds of many potential homebuyers. The good news is that average 30-year mortgage rates are currently a bit lower than they were a month ago, and there’s a possibility they may drop further.

To understand whether rates will decrease this month, we need to consider a variety of factors, with inflation being the key driver. Next week, we’ll get to see the Consumer Price Index (CPI) data for July, which will tell us how much inflation grew last month and whether it’s continuing to decelerate.

Over the past year and a half, high inflation, coupled with Federal Reserve rate hikes aimed at controlling rising inflation, have put immense upward pressure on mortgage rates. However, as inflation shows signs of slowing down, mortgage rates are expected to follow suit.

The Mortgage Bankers Association (MBA) projects that 30-year rates could drop back below 6% by the end of this year, potentially boosting affordability for homebuyers who have been deterred by high mortgage rates. But for even lower rates, buyers may want to hold off until 2024 when the MBA suggests rates could drop below 5%.

Current Mortgage Rates

  • 30-Year Fixed Mortgage Rates: This week’s average rate, according to Freddie Mac, is 6.81%, reflecting a 3-point increase from the previous week. The 30-year fixed-rate mortgage is the most common type, allowing borrowers to repay the loan over 30 years with a fixed interest rate for the loan’s duration. While the longer term keeps monthly payments lower, it does come with a higher rate compared to shorter terms or adjustable rates.

  • 15-Year Fixed Mortgage Rates: The average rate this week is 6.11%, up 5 basis points from the prior week. If borrowers seek the predictability of a fixed rate and wish to save on interest over the loan’s life, a 15-year fixed-rate mortgage might be a suitable choice. Though it comes with higher monthly payments than longer-term loans, it offers lower rates and potential savings of thousands of dollars on interest.

It’s worth noting that Federal Reserve rate hikes have a ripple effect on mortgage rates, despite not directly impacting them. Mortgage rates fluctuate based on investor demand for mortgage-backed securities, which is influenced by expectations around how Fed hikes will affect the broader economy. As inflation begins to subside, mortgage rates should follow suit. However, the Fed has indicated that it is awaiting further inflation reduction, which may result in additional rate hikes this year.

The recent CPI data for June 2023 showed a significant slowdown, with a 3% year-over-year increase, compared to the previous month. This bodes well for mortgage borrowers and the overall economy, as lower inflation should eventually lead to reduced mortgage rates.

While waiting for mortgage rates to ease, homeowners who want to leverage their homes’ value for significant purchases or renovations could consider a home equity line of credit (HELOC). Unlike a cash-out refinance, a HELOC allows you to borrow against the equity in your home, similar to a credit card. Current HELOC rates are relatively low compared to other loan options, such as personal loans or credit cards.

In conclusion, there is a possibility that mortgage rates could finally fall in August. The pivotal factor influencing this trend is inflation, as lower inflation typically leads to reduced mortgage rates. With the MBA projecting potential drops in rates by the end of the year, prospective homebuyers might find better affordability and should consider timing their mortgage applications accordingly. Furthermore, homeowners can explore the option of a HELOC to cover expenses while waiting for mortgage rates to ease. Overall, the current trends in inflation and market signals suggest a potential window of opportunity for individuals looking to secure favorable mortgage rates.