Is Now the Right Time to Lock in Your Mortgage Rate? Find Out This September.

Should You Lock in a Mortgage Rate This September?

The last few years have been challenging for homebuyers searching for affordable mortgage options. As the Federal Reserve increased rates to control inflation, mortgage interest rates soared from the record lows of 2020 and 2021, surpassing 8% by late 2023. This surge in rates, combined with high home prices, has made homeownership more difficult for many.

However, recent changes in the economy have brought new hope to the housing market. As inflation eases, mortgage rates have gradually declined, reaching a 15-month low. This shift is making it easier for buyers to return to the market. But the key question remains: Should you lock in a rate this September, or is it better to wait?

Why Locking in a Rate This September Could Be a Smart Move

Anticipation of Lower Rates

While the Federal Reserve's benchmark rate is currently at a 23-year high, many experts believe that a rate cut is imminent. The Fed has hinted at reducing interest rates starting in September. Although the Fed doesn't directly control mortgage rates, its decisions influence the broader interest rate environment, which affects mortgage pricing.

With the next Fed meeting scheduled for September 17-18, lenders often begin adjusting their rates in advance, anticipating changes. This is partly why mortgage rates have dropped in recent weeks, presenting a potential opportunity for homebuyers. Locking in a rate now could allow you to benefit from these lower rates. Plus, many lenders offer a "float down" option, enabling you to take advantage of even lower rates after locking in, though this may come with an additional fee.

Today's Rates Offer Significant Savings

Even if the Fed's actions don't significantly impact mortgage rates in September, it's important to recognize that current rates are still lower than they were just a few months ago and much lower than last year's peaks. These lower rates can result in substantial savings for homebuyers.

For example, if you're purchasing a $300,000 home with a 30-year fixed-rate mortgage and a 20% down payment:

• At the peak rate of 8% in late 2023, your monthly principal and interest payment would be around $1,761.
• With today's rates at approximately 6.5%, your payment would be about $1,517 per month.

This difference of $244 per month adds up to $2,928 in savings per year, or roughly $87,840 over the life of the loan. By locking in a rate now, you can secure these savings. While a 6.5% rate may seem high compared to the 3% rates available a few years ago, it remains competitive in a historical context.

Reduced Buyer Competition

When mortgage rates drop, buyer competition typically increases, making it more challenging and costly to buy a home. However, current data suggests that buyer competition remains low. According to Redfin, sales of existing homes fell by 2% year over year in July, while pending sales decreased by 3% month-over-month and 6% year-over-year. This reduced buyer activity offers an opportunity for those ready to enter the market.

By securing a mortgage rate now, you can take advantage of this temporary lull before competition potentially heats up again as rates continue to fall.

The Bottom Line

September presents a unique opportunity for potential homebuyers. With rates lower than recent peaks, the possibility of further rate drops, and reduced buyer competition, now might be an ideal time to lock in your mortgage rate. However, it's crucial to consider your financial situation, long-term goals, and local market conditions before making a decision.

Find Down Payment Assistance Programs Near You here.