Good news for homeowners and future homebuyers: Mortgage interest rates have started to decline for the first time since early 2020, offering a great opportunity if you’ve been looking to save money or refinance your current loans.
If you’ve been sitting on the sidelines while rates have been historically high, now could be the perfect time to start exploring your options. Here’s everything you need to know about the rate drops — and how you can capitalize on them:
Why are mortgage rates dropping?
Mortgage rates fluctuate based on lots of factors including market conditions, Federal Reserve policies, and inflation trends. Recently, the Federal Reserve decreased rates for the first time in four years. This had an immediate effect on interest rates for everything from credit cards to mortgages to the stock market, giving many borrowers — including homeowners and potential home buyers looking to secure a loan — a better shot at securing favorable terms. (Here’s more background on the rate cuts and what they mean for your finances.)
5 ways to take advantage of lower mortgage rates
1. Refinance your mortgage
If you already own a home, refinancing your mortgage can be a game-changer. By refinancing at a lower rate, you could reduce your monthly payments, save thousands over the life of the loan, or even pay off your mortgage sooner.
2. Lock in a fixed-rate mortgage
For homebuyers, locking in a fixed-rate mortgage when rates are low means you can secure a consistent payment throughout the life of your loan. This is especially valuable in times of economic uncertainty. But despite the recent drop, rates are still much higher than they were several years ago. And after the recent cut, Federal Reserve chair Jerome Powell indicated that rates will likely be cut further, meaning it may make sense to wait for a lower fixed rate. What you choose depends on your own situation — here’s a primer on fixed vs variable mortgage rates to help you decide which might be best for you.
3. Consider shorter loan terms
Lower rates can also mean you might be able to afford a shorter loan term, such as switching from a 30-year mortgage to a 15-year mortgage. This can help you pay off your home faster while also reducing the total amount of interest you pay. Want to see how a shorter term impacts your finances? Google added a free mortgage calculator to its search (just type in “Google mortgage calculator”).
4. Boost your credit score
While rates are dropping, lenders still offer the best deals to those with a solid credit score. Improving your credit score, even by a few points, could qualify you for a lower rate. Check out our tips on boosting your credit score before applying.
5. Look for special offers
Many lenders offer incentives or special offers, such as discounts on closing costs or waived fees. Keep an eye out for deals that could sweeten the deal even further. Be sure to check with multiple lenders to find the best offer available. And if you’re a current homeowner, there are also plenty of ways to lower your mortgage interest rates — in virtually any rate environment.
Want more tips on navigating mortgages and personal finance? Explore our other helpful resources on interest rates and financial planning.
MoneyLion has your back
We’re here to help you take advantage of the recent interest rate drops — both when it comes to mortgages and beyond — so you can stay on top of your financial goals and make smart decisions for your future. Download the MoneyLion app today for more financial resources and tools.
