Mortgage Rates Fall to Under 5% for the First Time Since April

Buyers should act quickly to capitalize on lower borrowing costs.

There's a reason 2022 has been such a tough year for prospective home buyers. Not only have home prices remained sky-high, but mortgage rates have climbed significantly since the start of the year. That, combined with exorbitant home prices, is forcing buyers to put their plans on hold due to affordability issues.

But right now, buyers who are able to lock in a mortgage quickly may be in luck. Mortgage rates have been dipping over the past couple of weeks, and for the first time since April, they're sitting at under 5%. That gives buyers a solid opportunity to reap some savings in the course of financing a home.

Why are mortgage rates falling?

The Federal Reserve has steadily been implementing interest rate hikes in an effort to cool inflation. And when it costs banks more money to borrow from one another, they tend to pass those costs onto consumers.

But in the past couple of weeks, mortgage rates have gone in the opposite direction we'd expect them to go. Rather than rise following the most recent Federal Reserve rate hike, they just dipped to 4.99% on average for a 30-year loan. By contrast, the average 30-year loan sat at 5.81% in mid-June.

So what gives? The reality is that while consumer borrowing rates are apt to increase across the board in the wake of the Fed's interest rate policies, mortgage rates started soaring before the Fed started taking drastic action. And so now, it's natural to expect those rates to fluctuate based on factors like inflation and economic uncertainty.

Also, it's in the best interest of mortgage lenders to try to keep their rates competitive as recession fears loom. And so it's not surprising to see a modest drop in that regard.

Should buyers rush to lock in a mortgage now?

Given the way mortgage rates have trended this year, the idea of paying just under 5% for a 30-year loan may seem appealing. But let's not forget that just one year ago, the average 30-year mortgage rate was only 2.77%.

All told, the days of ultra-low mortgage rates are likely behind us for the foreseeable future. Buyers might manage to eke out some savings by locking in loans when rates dip, but they shouldn't do so if it means moving forward with a home purchase when they're not financially ready.

For those who have crunched the numbers and can afford a home at today's prices, now would be a pretty good time to lock in a mortgage based on how rates have trended over the past few months. But those who aren't ready financially shouldn't push themselves.

Chances are, mortgage rates will rise and fall for the duration of 2022. And this most likely won't be the only opportunity for buyers to reap significant savings.

Furthermore, mortgage applicants with strong credit are likely to receive the best rates any given lender is offering up. So buyers with poor credit may want to work on boosting their scores, even if that means putting off homeownership for a good number of months.