July 23, 2024

Mortgage Interest Rates Expected to Go Down in 2024, Save Americans Hundreds.

Even a small drop in mortgage rates could save homeowners hundreds.
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  • Over $1 trillion in new mortgage loans have interest rates of 6% or higher.
  • Even a small drop to 5.5% could lead to huge savings each month if homeowners refinance.
  • Rates have already started to drop and could come down further in 2024.

Monthly mortgage payments have ballooned in recent years for people buying homes. However, there might be some financial relief on the horizon.

Homeowners who recently purchased properties with interest rates as high as 8% face much higher monthly mortgage payments compared to the much lower rates seen a few years ago. However, with the potential for interest rate cuts, these homeowners might soon be able to refinance their mortgages at lower rates, offering substantial monthly savings.

For example, the average mortgage loan is $350,000, and a person who landed an interest rate of 3% before the pandemic would be paying $1,476 per month on a 30-year fixed-rate loan. That same loan at 8% means monthly payments of $2,568 or a difference of $1,092 every month just for buying a house a few years later.

Of course, interest rates will not get back down to 3% anytime soon, but homeowners don’t need rates to drop much to see a big difference in their bank accounts.

Even a small drop in rates means big savings

According to commentary sent to reporters on December 13 from TransUnion, the credit reporting agency, there have been three million new mortgages since January 2021 with interest rates at 6% or higher. The total balance on those loans exceeds $1 trillion, with an average monthly payment of $2,201.

Michele Raneri, vice president of US research and consulting at TransUnion, said these homeowners will likely be the first to take advantage of dropping rates.

“We expect those homeowners who are currently making payments on high-interest mortgage loans to be among the first to take advantage of a reduction in rates as refinancing could immediately put real money into their pockets,” Raneri wrote in the TransUnion note.

Homeowners with high-interest mortgage loans are expected to quickly refinance when rates drop.
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If interest rates dropped to just 5.5% and a homeowner refinanced, the average payment on those high-interest loans would lower to $1,917, a savings of $284 every month.

And that’s just the average; some people who bought into the housing market more recently would save even more. While mortgage interest rates have started to fall recently, they were above 7% for much of 2023, peaking near 8% in October.

According to Freddie Mac, the average rate as of December 14 for a 30-year fixed mortgage is 7%, down from 7.5% in the second week of November.

The Fed signaled that rate cuts could happen in 2024

In the Federal Reserve’s most recent announcement, it held interest rates at their previous level but forecasted that they could start cutting in 2024.

While mortgage rates don’t directly reflect changes to the Fed rate, they typically trend in the same direction or in anticipation of what the Fed might do.

To be sure, nobody knows for sure how the Fed will act in the coming months. In the press conference following its December announcement, Powell cautioned three cuts was just a forecast and is subject to change.

In a December 18 note from Goldman Sachs chief economist Jan Hatzius, he predicted three interest rate cuts in the first half of 2024.

U.S. Federal Reserve Board Chairman Jerome Powell.
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Others are less optimistic, including UBS CEO Sergio Ermotti, who said during a December 17 interview that he is “still not convinced that inflation is really under control.”

Not only will a drop in rates save existing and new homeowners money each month, but it would also make younger, first-time buyers more competitive in a market currently being won by Americans who can afford all-cash purchases, especially among the older generations.

The housing market is still struggling, but these are all signs that things could pick up in 2024.

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