Will Mortgages Still Be 7% in 2024?

Today's elevated mortgage rates are making life very difficult for prospective home buyers. They're also taking refinancing off the table for a lot of mortgage holders.

As of this writing, the average interest rate on a 30-year mortgage is 7.57%, according to Freddie Mac. But the reality is that mortgage rates have been elevated since the start of the year, and they'll likely remain high for the remainder of 2023.

But will things be any different in 2024? Or will borrowers be facing the same exorbitant rates next year that they're looking at right now?

There may be some relief in sight

A lot of people are blaming today's higher mortgage rates on the interest rate hikes that have been implemented by the Federal Reserve since early 2022. Now, the reality is that the Fed does not set any borrowing rates for consumers. Rather, it oversees the federal funds rate, which is what financial institutions charge one another for short-term loans.

But when that benchmark interest rate goes up, lenders tend to pass the cost onto consumers. That explains why it's more expensive these days to sign an auto loan, home equity loan, or personal loan.

While general borrowing conditions can impact mortgage rates, borrowing rates for home buyers tend to be more influenced by the 10-year Treasury. Right now, the yield on the 10-year Treasury is high, but it's expected to drop in 2024. If that happens, mortgage rates could follow suit.

However, it's important to have realistic expectations about how low mortgage rates will get. We could see rates drop into the 6% range, or even lower. But if you're looking to buy a home, don't expect to see the same 3% interest rates borrowers got to enjoy in 2020 and 2021. We may not see rates that low again for many years.

How to save on a mortgage when rates are high

These days, even prospective home buyers with excellent credit are looking at higher mortgage rates due to market conditions. But there are a few steps you can take to walk away with a lower rate on a mortgage.

First, try to get your credit score as high as possible. If you can get your score into the 800s by paying all bills on time and keeping revolving credit card balances down, you might snag a discount on your mortgage rate (with the understanding that your rate might be high to begin with).

It also pays to shop around with different mortgage lenders and compare offers. You may find that one lender is willing to come in at a lower rate than another.

Finally, if you can afford a shorter-term mortgage, you might lower your borrowing rate in the process. The average rate on a 15-year loan today is 6.89%, according to Freddie Mac. A 15-year mortgage will leave you with higher monthly payments, but if you're buying a home that's well below your budget, that may be manageable.

In time, mortgage rates should come down. And that may happen in 2023. But don't expect rates to fall back to 3%. Those rates are unlikely to be available anytime soon.