Housing News

What Goes Up Must Come Down: Mortgage Interest Rates Continue to Fall

Mortgage interest rates continued their downward slide in the last week, providing both homebuyers and homeowners with some much-needed financial relief.

Rates slid down to an average 6.26% for 30-year, fixed-rate loans in the week ending Sept. 18, according to Freddie Mac data. This was down from 6.35% the previous week. However, it was higher than a year ago, when rates averaged 6.09%.

The drop was due to the anticipation surrounding the U.S. Federal Reserve’s meeting on Sept. 17. The Fed voted to lower its benchmark interest rate by a quarter of a percentage point, the first rate cut of 2025.

While the Fed’s short-term interest rates are separate from mortgage rates, the two generally move in the same direction. So, if the Fed signals it’s about to lower its rates, mortgage rates typically tumble.

The decline is driving more people to seek out a home loan, especially those who already own property.

“Mortgage rates decreased yet again this week, prompting many homeowners to refinance,” said Freddie Mac Chief Economist Sam Khater in a statement.

In the week ending Sept. 12, mortgage applications shot up 29.7% compared to the previous week, according to the Mortgage Bankers Association.

Much of that was driven by homeowners refinancing their loans into lower rates. Refinance applications jumped nearly 60% compared to the previous week.

Even small rate changes can add up to big savings for homeowners who refinance.

For example, someone who got a mortgage in October 2023, when rates were around 8%, might be able to save around $400 a month if they refinanced to a 6.25% rate. Over a year, they would be saving nearly $5,000 a year in interest and $146,000 over the life of a 30-year, fixed-rate loan.

(This assumes someone put down 20% on a median-priced home of $429,900.)

Homebuyers could also see their purchasing power rise.

Meanwhile, someone earning $100,000 a year may be able to afford a home costing $47,000 more with rates falling from 8% to 6.25%.

“Affordability is still the major constraint keeping many would-be homebuyers on the sidelines,” said Bright MLS Chief Economist Lisa Sturtevant in a statement. The multiple listing service covers the mid-Atlantic region. “The recent drop in mortgage rates is a positive development for helping to ease the affordability challenge.”