If the state of inflation dictates where interest rates lie, borrowers got some welcome news on Thursday when the Bureau of Labor Statistics announced yet another drop in the inflation rate for August. Now at 2.5%, the rate is just half a percentage point above where the Federal Reserve wants it to be, meaning that a cut to the federal funds rate will almost assuredly be issued when the Fed meets again later this month. A reduction there, then, could lead to lower rates on borrowing products like personal loans, credit cards and mortgages.

Homebuyers contending with the highest mortgage rates in decades are now positioned to finally see some relief. And it could come with multiple reductions to the federal funds rate, both in September and in subsequent Fed meetings scheduled for November and December. Against this backdrop, buyers should start calculating their potential monthly mortgage costs if they act now versus what their payments will be once rate cuts are issued. Below, we’ll calculate the exact costs for a $700,000 mortgage under multiple rate scenarios.

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How much will a $700,000 mortgage cost monthly after rates are cut?

To truly understand if it’s worth waiting for rate cuts to be issued, it’s important to first know what a $700,000 mortgage would cost at today’s prevailing rates. Here’s what it would cost per month, assuming the conventional 20% down payment ($140,000) is made, minus any costs tied to homeowners insurance and taxes:

• 15-year mortgage at 5.78%: $4,659.30 per month
• 30-year mortgage at 6.41%: $3,506.50 per month

Mortgage interest rates are unlikely to drop by the same amount that the federal funds rate does. That said, here’s what monthly payments on a $700,000 mortgage loan would be if rates drop by 25 basis points:

• 15-year mortgage at 5.53%: $4,584.59 per month 
  
• 30-year mortgage at 6.16%: $3,415.30 per month

And while the CME FedWatch tool has the 25 basis point cut pegged for the September meeting at an 87% likelihood, that doesn’t mean that another cut in the same amount couldn’t be issued in November. Here’s what monthly mortgage payments on a $700,000 loan would fall to, then, assuming a cumulative half of a percentage point cut from today’s rates:

• 15-year mortgage at 5.28%: $4,510.55 per month
• 30-year mortgage at 5.91%: $3,215.15 per month

So if you wait for interest rate cuts to be issued, you could save more than $290 per month with a 30-year mortgage option and more than $140 per month with a 15-year term. But waiting could also pose its own set of complications with increased buyer competition and possibly higher home prices. So weigh the potential savings carefully against what’s available today.

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The bottom line

Financial relief for homebuyers is on the horizon. Predicted interest rate cuts could save those pursuing a $700,000 mortgage loan significant sums of money both each month and over the life of the loan. But buyers don’t necessarily need to wait to act. Mortgage interest rates have already come down by more than a full percentage point since the end of 2023, so a home purchase may already be affordable today. Start crunching the numbers, then, and start shopping for lenders to better determine if now is the right time to act (or if you’re better served by waiting a few more weeks or months).