Let's Talk Interest Rates

When it comes to buying a home, a big topic of conversation is always current mortgage interest rates. This makes sense, as the interest that’s paid on a mortgage is usually one of the largest expenses when buying a home. Lately interest rate talk has been a more frequent topic after rates hit multi-decade highs last fall. Below are a few questions I often get about interest rates, and how I typically answer.

“What is the rate now?”

This is a question I hear usually from older people. The answer is today there isn’t a single fixed mortgage rate – it’s more of a range. There are dozens of factors that can affect the specific rate someone is offered, including loan program, down payment amount, credit scores, and property type. This is important to keep in mind when looking at interest rates that companies advertise on billboards or online. If the rates shown are actually accurate, they always have some important qualifiers and won’t apply to many people’s purchase scenario. Whenever someone claims to be offering a rate that seems significantly lower than the rest of the market, it’s good to ask a lot of questions.

“Aren’t rates high now?”

This is clearly a subjective question. For a historical perspective, since Freddie Mac started tracking interest rates in 1971, interest rates were higher than now until 2000, then with some peaks and valleys declined until 2021, when they went up to their highest levels since 2000. So far in 2024 they have been declining at a slow pace.

“Isn’t the Fed going to lower/raise rates later this year?”

A common misconception is the Federal Reserve Board (FRB) sets mortgage rates. The interest rate the FRB sets is the overnight rate banks lend money to each other. While some consumer loans use this rate as a base, mortgages do not. Mortgage rates are determined by the financial markets the same way stock prices are. For each mortgage, there is someone on the other side lending the money at that rate. When investors think they can make more money elsewhere, interest rates go up as that money is invested in other assets.

“Should we buy a home now, or wait for interest rates to go down?”

None of us can accurately predict where interest rates are going to be at any point in the future. My advice is always for families to buy when the time is right for their individual family, not trying to time macroeconomic indicators. I bought my first home in 1999 when interest rates were higher than they are now, and that has worked out well for me in the same way that my parents bought their first home in 1975 with an even higher rate and that worked out for them. It’s all relative.

If you have specific questions about what rates or loan programs you might qualify for, let’s run the numbers. I’m always happy to answer questions and talk through your options.