3 Mortgage Moves You Need to Make Before the Fed’s July Meeting

Although inflation has cooled to 3.0% in recent months, current inflation rate remains above the Federal Reserve’s 2% target rate. As a result, the Fed has kept its benchmark rate high. And while mortgage rates have also fallen slightly in recent months, the current average mortgage rate for 30 years is 6.86% (as of July 22, 2024) — a rate that remains significantly higher than the sub-3% mortgage rates many buyers took out during the pandemic.

With mortgage rates remaining relatively high, some potential homebuyers have been waiting on the sidelines to see if rates would drop and mortgages would become cheaper. If inflation continues to show downward trendThis could become a reality as the Fed is expected to cut its benchmark interest rate sometime in 2024. With inflation continuing to fall, there is a small chance that the Fed will cut rates at its July meeting, although any rate cut by the Fed is expected to occur later this year.

If you plan to buy a home after the Fed meeting, which is scheduled for July 30 and 31, it would be wise to start preparing now.

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3 Mortgage Moves You Need to Make Before the Fed’s July Meeting

If you’re planning to buy a home soon, or are a homeowner looking to refinance your current mortgage loan, here are some steps experts recommend taking before the upcoming Fed meeting.

Start looking around

Mortgage rates and fees vary by lender, so it’s crucial to looking around for a mortgage to ensure you get the best interest rate for your financial situation.

Melissa Cohn, regional vice president at William Raveis Mortgage, recommends shopping the market for rates every now and then (i.e. after the July Fed meeting). When you’re ready to formally apply for a mortgageCohn says that when you first apply, you should check which new mortgage rates the banks with the best rates are offering.

John Aguirre, a mortgage lender at Loantown, recommends asking yourself this question when looking for a mortgage: What is the interest rate and what are the associated bank fees?

You can also read online reviews to see what other people have said about their experience with the lender, Aguirre says. If a lender has overwhelmingly bad reviews, that may be a sign to avoid them.

“I’ve seen people stuck in horrible refinancing applications with banks that never came to fruition. By the time they moved to a new bank, they were stuck with a higher interest rate,” Aguire says.

According to Aguirre, it’s also important to pay attention to how quickly a lender responds.

“If your mortgage broker doesn’t respond to your requests for a rate quote, imagine how bad it will be if you actually take out a loan with him,” says Aguirre.

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Work on improving your credit score

It can help to strengthen your credit file before you apply. Find a cheaper mortgage in the current high interest rate climate.

Aguire says consumers should judge the products their credit scores to ensure they have the strongest credit possible. That way, they can take advantage of the best refinancing (or purchase) rates.

Some steps you can take to increase your credit score include paying off debts and checking your credit reports for errors. Additionally, try not to open new credit accounts a few months before applying for a mortgage, as this can lead to hard inquiries on your credit reports, which can lower your score.

Determine which mortgage product you want to use

Another move you can make ahead of the Fed meeting is to learn how different types of mortgages work. That way, you can select the option that best fits your budget and goals.

Two common options include fixed-rate mortgages and adjustable rate mortgages (ARMs). A fixed-rate mortgage has an interest rate that remains fixed for the life of the loan, protecting you from higher costs due to future interest rate hikes. An ARM, on the other hand, has an interest rate that remains fixed for a set period of time and then fluctuates based on the overall interest rate environment, which can be beneficial when interest rates fall.

“We believe the benefits of a fixed-rate mortgage outweigh the benefits of a variable-rate mortgage because they provide more stability and predictability for consumers,” said Jason Obradovich, chief investment officer at mortgage lender New American Funding.

Cohn says whether an ARM or a fixed rate mortgage is best depends on how long you want to stay in your new home.

“With rates expected to drop over the next two years, many buyers are looking at the lower rates that variable options offer. If you only expect to live in your new home for five to seven years, it may make sense to go with an ARM,” Cohn says.

But if you prefer stability and security, a 30-year fixed-term loan is the optimal choice, says Cohn.

Should You Lock In Your Mortgage Rate Before the Fed Meeting in July?

Whether it makes sense to lock in a mortgage rate before the upcoming Fed meeting depends a lot on your financial situation. If you can easily afford a mortgage at the current rate, it may make sense to lock in a rate now rather than later. wait for mortgage rates to dropIf you now fix an interest rate for a mortgage with a fixed interest rate, you will not be affected by any increase in the mortgage interest rate.

Some experts believe mortgage rates could fall by 0.25 to 0.75% when and if the Fed will cut rates for the first time in 2024Some experts even believe that the reason mortgage rates have been falling lately is because the market is expecting a rate cut.

“In recent weeks, we have seen interest rates, including mortgage rates, fall as the market expects the Fed to take one or two more measures in September and possibly later this year,” Obradovich said.

“We expect interest rates to continue to decline in 2024 as inflation appears to be moving more in line with the Fed’s target, and this trend is expected to continue,” Obradovich said.

it comes down to

It is impossible to predict exactly what will happen to mortgage rates after the Fed’s July meeting. As a result, Aguirre advises homebuyers not to try to time the market. Instead, you should make sure the purchase will achieve the goal you want, Aguirre says, and if it does, it makes sense to take action before things get moving. And to better prepare for a home purchase, take steps to prepare yourself, such as shopping around and improving your credit, regardless of what the Fed does.

“The decision to buy a new home shouldn’t be tied to the Fed,” Cohn says. If you’re considering a purchase now, Cohn recommends doing so (as long as it fits your budget). That’s because she believes that if mortgage rates continue to fall, home prices will rise. And even if rates drop after you buy a home, Cohn says you can always refinance your mortgage later on.