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Mortgage rates have come down quite a bit, but this could be just the beginning. Check out how much you could save by waiting. [[{“value”:”
It’s far more expensive to buy a home now than it was just a few years ago. The average 30-year mortgage rate at the beginning of 2022 was about 3%, and it wasn’t unheard of to find a rate in the mid-2% range if you had strong credit.
And not only have mortgage rates more than doubled since that time, but home prices have risen sharply. Over the past five years, home prices have risen by a staggering 52%, including a gain of 18% over the past three years alone.
However, there could be some good news on the way. If you’ve been waiting on the sidelines to buy a home, it could get significantly more affordable if you hold off until 2025.
I’m not talking about home prices. In fact, the latest forecast from Zillow predicts that home values will rise by 0.9% over the next 12 months.
However, the Federal Reserve is widely expected to continue cutting its benchmark interest rate through at least 2025, and this could result in far lower mortgage rates than are available today. And even if home prices rise a little, you might be surprised at how much of a difference a lower mortgage rate can make.
It’s all about mortgage rates
Let’s look at a quick example to illustrate how much of a difference a lower mortgage rate could make. We’ll say that you’re shopping for a home with a $500,000 budget and are planning to make a 20% ($100,000) down payment.
If you were to get a rate of about 6.5% today, this would give you a monthly principal and interest payment of $3,290. This is significantly better than you probably would have been able to get a year ago, when the average 30-year mortgage rate peaked at nearly 8%.
However, most experts believe rates will fall in 2025. Fannie Mae recently predicted that the average 30-year mortgage rate will fall to 5.7% by the fourth quarter of next year, and the Mortgage Bankers Association has a similar forecast of 5.8%.
Splitting the difference, let’s say that in late 2025 you get a mortgage rate of 5.75%. In the above example, this would give you monthly principal and interest payments of $3,094. Comparing the two scenarios, this would save you:
$196 in interest per month$2,352 in interest per year$70,560 in interest over the 30-year loan term
So if interest rates behave as expected over the next year (and that’s a big if), waiting to buy a home can save you a lot of money.
If you’re in the market for a home, check out our updated list of the best mortgage lenders right now.
Two big caveats
With all of the above in mind, there are a few things that are important to emphasize. For one thing, mortgage rate predictions are just that — predictions. Nobody knows for sure what will happen, and there is absolutely no guarantee that you’ll be able to get a lower mortgage rate in 2025 than you can now.
Plus, if you buy a home now, you aren’t exactly locked into the same interest rate for the entire term of your mortgage. If rates fall, you can always work with one of the best refinance lenders and save on a new mortgage.
To be sure, refinancing isn’t free and you’ll end up paying some fees to do it. But the point is that if you find your dream home and can afford the monthly payments with the current rates, you don’t necessarily need to pass on it simply because you’re waiting for mortgage rates to come down.
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The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Matt Frankel has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Zillow Group. The Motley Fool has a disclosure policy.
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