Great News! Mortgage Rates Are Dropping. What Does That Mean for You?

Mortgage rates have been a hot topic in the housing market over the past 12 months. Compared to the beginning of 2022, rates have risen dramatically. Now they're dropping, and that has to do with everything happening in the economy.

Nadia Evangelou, Senior Economist and Director of Forecasting at the National Association of Realtors (NAR), explains it well by saying:

"Mortgage rates dropped even further this week as two main factors affecting today's mortgage market became more favorable. Inflation continued to ease while the Federal Reserve switched to a smaller interest rate hike. As a result, according to Freddie Mac, the 30-year fixed mortgage rate fell to 6.31% from 6.33% the previous week."

So, what does that mean for your homeownership plans? As mortgage rates fluctuate, they impact your purchasing power by influencing the cost of buying a home. Even a slight dip can help boost your purchasing power. Here's how it works.

According to the National Association of Realtors (NAR), the median-priced home is $379,100. So, let's assume you want to buy a $400,000 home. If you're trying to shop at that price point and keep your monthly payment about $2,500-2,600 or below, here's how your purchasing power can change as mortgage rates move up or down (see chart below). The red shows payments above that threshold, and the green indicates an amount within your target range.

This shows that even a small quarter-point change in mortgage rates can impact your monthly mortgage payment. That's why it's crucial to work with a trusted real estate professional who follows what the experts are projecting for mortgage rates for the days, months, and years ahead.

Bottom Line

Mortgage rates are likely to fluctuate depending on what happens with inflation moving forward, but they have dropped slightly in recent weeks. If a 7% rate is too high for you, it may be time to contact a lender to see if the current rate aligns with your monthly housing expense goal.