High mortgage rates have put a squeeze on homebuyers and homeowners looking to refinance, but relief may be in sight.

Financial experts expect that the Federal Reserve will cut the federal funds rate in September, the first rate cut of 2024. The impact of the Fed rate on mortgage rates may not be immediate, as markets have likely already factored in this expected cut. Still, this move could lead to lower mortgage rates in the coming months.

But how low might they go, and what does this mean for your homebuying or refi plans? Let’s find out.

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Here’s how far mortgage rates could fall after the September Fed meeting

Josh Green, mortgage loan originator at Barrett Financial, thinks there’s a “100% chance” of a Fed funds rate cut, but its impact may vary. 

“If Powell [indicates] the economy is weaker than expected or they’re considering a bigger cut, [mortgage] rates [might] drop further as they price in those future reductions,” Green says.

Assuming the Fed achieves a soft landing — which is historically rare but plausible — Green believes rates could hover around 6% for a while. Long-term, they may potentially drop to the 4.5% to 5.5% range.

Loan Depot’s sales manager, Debbie Calixto, cautions we may not see substantial drops until after the November Fed meeting. 

“If there’s confidence in another rate cut in November … we could see another decrease in mortgage rates [possibly] in October,” Calixto says.

Learn more about the best mortgage rates available to you here.

Factors influencing rate reductions

According to Steve Hill, a mortgage broker at SBC Lending, several factors influence how far mortgage rates might fall (or not):

• Economy: A strong economy usually leads to higher mortgage rates, while a weakening economy often results in lower rates.
• Jobs: High employment can push mortgage rates up, but rising unemployment may lead to rate decreases.
• Inflation: Lower inflation rates often allow for mortgage rate reductions, while high inflation tends to keep rates elevated.
• Election: Political uncertainty can cause mortgage rates to fluctuate, with possible policy changes affecting market expectations.
• Global events: Geopolitical tensions can sway rates (e.g. conflicts that raise oil prices could keep inflation high, preventing rate cuts).

What this means for homebuyers and refinancers

Acting now could mean less competition and greater potential for equity growth. On the other hand, waiting might lead to lower rates but increased housing demand.

Your decision depends on your unique financial situation and goals.

Should you buy a home now?

Buying a home now, even with higher rates, can be advantageous. 

“We [currently] have a low supply of houses … When interest rates drop, [we expect] an influx of eager buyers,” says Calixto. 

This increased demand (and the lack of inventory to support it) could drive up home prices — possibly offsetting the benefits of waiting for lower rates.

Calixto notes her experience helping a couple buy their first home with an FHA loan nine months ago. Interest rates were high then, Calixto says, in the mid-7%. But they’re now refinancing to save over $400 per month. On top of that, their home’s value increased significantly in that short timeframe.

This scenario shows how acting now can lead to quick equity gains and create opportunities to benefit from future rate drops through refinancing.

When would it make sense to wait?

While acting now can be favorable for some, waiting might make more sense for others. For instance, Green suggests that pursuing a mortgage refinance now might be a bit too early for some homeowners.

“There might not be a lot of benefits unless you bought last year and have a rate near 8% or a VA loan,” Green says.

However, he cautions against waiting too long, even if you think rates will drop further. 

“[A gentleman I know of through a colleague has been holding out for the ultimate bottom], but in doing so, he’s missing out on $800 a month in savings,” he says. This scenario shows that waiting without a smart strategy can cost you money in the long run.

Green recommends a balanced approach instead. It might be worth refinancing now if you can lock in savings of at least $300 per month. With some loan types, such as VA loans, you can easily refinance again after a short period if rates continue to fall.

The bottom line

While mortgage rates may drop after the September Fed meeting, nobody knows exactly when or by how much. That’s why experts advise against trying to time the market. 

“Gauging future mortgage rate movements and waiting with hopes [that] rates will fall could delay [your] ability to start creating wealth,” warns Calixto. Instead, make decisions based on where you are now and what will benefit you most in the present.

If you’re in the preparation phase, talk to several mortgage lenders. They can help you understand your options and come up with a solid plan. As you have those discussions, look for a rate much lower than what you have now or less than recent averages. Typically, a drop of 0.75% or more is worth considering.