Mortgage Interest Rates Today, July 2, 2024 | Will Rates Drop This Month? It Depends on Inflation
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Mortgage rates fell in June, and they could inch down further this month. Average 30-year mortgage rates were around 6.58% last month, an 18-basis-point drop from the month before.
Most forecasters expect rates to ease as inflation slows and the Federal Reserve starts lowering the federal funds rate. But how quickly they'll fall and by how much depends on how the economy trends in the coming months and years. If inflation is slow to come down, we may not see substantially lower mortgage rates until 2025 or 2026.
Investors currently believe that the Fed will cut rates once or twice this year, according to the CME FedWatch Tool. This will likely allow mortgage rates to inch down. But it depends on how inflation trends.
Next week, the Bureau of Labor Statistics will release June's Consumer Price Index data. This will give us an updated look at how inflation has been trending, and could cause mortgage rates to fluctuate depending on what the data shows.
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30-Year Fixed Mortgage Rates
Last week's average 30-year fixed mortgage rate was 6.86%, according to Freddie Mac. This is a one-basis-point decrease from the previous week.
The 30-year fixed-rate mortgage is the most common type of home loan. With this type of mortgage, you'll pay back what you borrowed over 30 years, and your interest rate won't change for the life of the loan.
The lengthy 30-year term allows you to spread out your payments over a long period of time, meaning you can keep your monthly payments lower and more manageable. The trade-off is that you'll have a higher rate than you would with shorter terms or adjustable rates.
15-Year Fixed Mortgage Rates
Average 15-year mortgage rates inched down to 6.16% last week, according to Freddie Mac data. This is a three-basis-point increase from the week before.
If you want the predictability that comes with a fixed rate but are looking to spend less on interest over the life of your loan, a 15-year fixed-rate mortgage might be a good fit for you. Because these terms are shorter and have lower rates than 30-year fixed-rate mortgages, you could potentially save tens of thousands of dollars in interest. However, you'll have a higher monthly payment than you would with a longer term.
How Do Fed Rate Hikes Affect Mortgages?
The Federal Reserve increased the federal funds rate dramatically to try to slow economic growth and get inflation under control. So far, inflation has slowed significantly, but it's still a bit above the Fed's 2% target rate.
Mortgage rates aren't directly impacted by changes to the federal funds rate, but they often trend up or down ahead of Fed policy moves. This is because mortgage rates change based on investor demand for mortgage-backed securities, and this demand is often impacted by how investors expect Fed hikes to affect the broader economy.
The Fed has indicated that it's likely done hiking rates and that it could start cutting this year. This would allow mortgage rates to trend down later this year.
When Will Mortgage Rates Go Down?
Mortgage rates increased dramatically over the last two years, but they're expected to go down at some point this year.
In May 2024, the Consumer Price Index rose 3.3% year-over-year. Inflation has slowed significantly since it peaked last year, but it has to slow further before rates can continue trending down.
For homeowners looking to leverage their home's value to cover a big purchase — such as a home renovation — a home equity line of credit (HELOC) may be a good option while we wait for mortgage rates to ease. Check out some of our best HELOC lenders to start your search for the right loan for you.
A HELOC is a line of credit that lets you borrow against the equity in your home. It works similarly to a credit card in that you borrow what you need rather than getting the full amount you're borrowing in a lump sum. It also lets you tap into the money you have in your home without replacing your entire mortgage, like you'd do with a cash-out refinance.
Current HELOC rates are relatively low compared to other loan options, including credit cards and personal loans.