Expected Fed Rate Cut-What Homeowners & Buyers Should Know

Q: I’ve been hearing many people say that the Fed will cut interest rates in September this year. How will that affect me as I shop for a new home or consider refinancing? Crystal, Linden, NJ

A: The first Fed interest rate cut since 2020 is expected at the next Fed meeting in September. Although the Fed does not control mortgage interest rates directly, a reduction in the Fed Funds Rate can influence mortgage rates to drop. Home loan rates have already started to come down, in part induced by the Fed putting the brakes on rate increases.

Even small cuts in mortgage interest rates can make a meaningful difference in a home buyer’s monthly mortgage payment. To that point, people in the market to buy a home have been eagerly awaiting a Fed interest rate cut. Since the Fed did not lower interest rates in their last meeting at the end of July, there is also a greater likelihood of interest rate reductions in November and December of this year as well. Home refinancing has picked up recently with much of the new activity being from home buyers who got mortgages at around 8% in the fall of 2023. Refinancing is not free. There are significant closing costs that add to your debt when you refinance a mortgage, so the expected savings from refinancing must outweigh the upfront costs to make sound economic sense. People want to lower their monthly fixed costs, especially the 1 million people in the US who now owe more than $200,000 in federal student loans.

One possible result of lower mortgage rates is that if borrowing costs for home loans come way down, a lot more home buyers could jump into housing markets, which might result in demand continuing to exceed and outpace supply, which would send home prices even higher. It really depends on how far mortgage rates drop and how quickly they drop.

Thanks for your question, Crystal.

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