It may be hard to believe now, but it wasn’t that long ago that mortgage interest rates were near historic lows. On August 27, 2020, the average rate on a 30-year loan was 2.91%. One year later, it had dropped even further to just 2.86%. However, as the pandemic and influencing economic factors waned, inflation rose dramatically and by June 2022 it was at a 40-year high. Interest rates soon followed, and by August 2023, the average mortgage interest rate had more than doubled to 7.31% – the highest level since 2000.

But the rate climate is changing once again. 

Inflation has cooled significantly so far in 2024, dropping in the last four consecutive months. And while the Federal Reserve has kept the federal funds rate frozen at a range between 5.25% and 5.50%, cuts appear imminent for September. And when those are finally issued, rates on mortgages will once again begin to drop. While today’s average 6.57% rate for a 30-year mortgage still seems high, it may not be that elevated for much longer. Mortgage interest rates could fall below 6% sooner than some borrowers may anticipate. Below, we’ll detail when this change could take place.

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Here’s when mortgage interest rates could fall below 6%

Projections on how much the Federal Reserve will cut interest rates — and when they will do it — vary from economist to economist. What most seem to agree on, however, is that a cut is imminent for the Fed’s next meeting, set to conclude on September 18. The CME FedWatch tool has it pegged at 100% certainty. While the Fed doesn’t directly dictate what lenders offer borrowers, it does influence them. So if a 25 basis points cut is issued then, mortgage rates could, in theory, drop to 6.32% from today’s 6.57%. But that’s assuming today’s rate hasn’t always “priced in” a September cut. If lenders have, then that rate won’t move downward much further in September.

But the Federal Reserve will meet again on November 6 and November 7. And if inflation data at that point has still been encouraging, it’s possible they could drop the federal funds rate by another 25 basis points or even half a percentage point. Using today’s 6.57% rate as a baseline, mortgage rates will hover just over 6% then. 

It’s the final Fed meeting of the year, however, slated for December 17 and December 18, when mortgage interest rates are likely to fall below the 6% threshold. Even a simple 25 basis point reduction then should result in a sub-6% rate. But if the Fed feels safe becoming more aggressive, rates could even fall to the mid-to-high 5% range. 

Still, it’s important to remember that there’s not a direct correlation between the Fed and mortgage rate lenders. Lenders may price future rate cuts into their offers in advance, so it’s possible (if not likely) that mortgage rates could fall below 6% before December. But using today’s rough trajectory — and an assumption that no new economic data halts cuts — borrowers can generally expect to see rates in the 5% range sometime in the final weeks of 2024.

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The bottom line

Predicting the future of interest rates, particularly for specific borrowing products, can be an inexact science, reliant upon multiple unknown factors. But if inflation continues to cool, pressure will increase on the Fed to cut rates. Still, formal rate cuts don’t need to take place for lenders to offer lower rates on mortgages (they’ve already dropped more than a full percentage point since the end of 2023 absent a formal cut). So monitor the rate climate, improve your credit and start house hunting now. The time to secure a sub-6% mortgage interest rate could be sooner than you think.