![Mortgage interest rates are expected to drop by the end of the year—here’s how much you could save on monthly payments](https://media.nbcsandiego.com/2024/07/108007709-1721237573672-GettyImages-1399401331.jpg?quality=85&strip=all&resize=320%2C180)
With inflation decelerating, interest rate cuts are widely expected later this year. Traders are predicting a September cut with near 100% certainty, according to the CME FedWatch Tool, which uses market data to predict Federal Reserve interest rate decisions.
That's potentially good news for homebuyers, since interest rate cuts would likely make monthly mortgage payments a bit more affordable.
While mortgage rates are most closely linked to 10-year Treasury bonds, they tend to move in tandem with the Federal Reserve's benchmark interest rate. Consequently, a rate cut is likely to lower mortgage rates later this year.
How interest rate cuts could lower monthly mortgage costs
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Most major housing organizations expect mortgage rates to drop by the end of the year. And they've already gone down from 7% to 6.87% in the past week, according to the Mortgage Bankers Association.
Mortgage rate forecasts for the end of 2024 differ slightly. Realtor.com expects average rates to fall to 6.5%, while Fannie Mae predicts 6.7%.
There might be more breathing room in 2025, too, as major forecasts expect rates to continue to slide. Wells Fargo forecasts APRs to average 6% in the first three months of 2025, while the MBA expects a rate of 5.9%.
Here's how monthly mortgage costs would vary at different interest rates, based on a U.S. median home price of $420,800 with a 20% down payment:
- 6.87% (current): $2,210
- 6.7%: $2,172
- 6.5%: $2,128
- 6%: $2,018
- 5.9%: $1,997
These totals suggest that declining APRs could result in possible savings of over $200 per month for homebuyers.
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However, the ability to afford a home at all will largely depend on other factors, such as your income, the home price, the size of your mortgage and whether or not you have a financial cushion to afford costs like insurance and repairs.
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Whether you should wait out mortgage rates and buy a home later in 2024 or 2025 is another matter. Home prices could keep rising in the meantime, and there's no guarantee that the Federal Reserve will start slashing rates in September, as economic conditions could easily change.
"There's an old saying, 'marry the home, date the rate,'" which suggests that you should commit to a home you love if it's available while treating the mortgage rate as something you can refinance later, says Kevin McLoughlin, a certified financial planner in Virginia.
However, that comes with a big caveat: If you're looking at a home that's not affordable now and "are making the purchase on the notion that it will be affordable with a future refinance to a lower rate, I would strongly caution against making the purchase," he says.
See if you can afford a home based on current rates
To give you a better idea of whether you can afford to buy a home, use CNBC Make It's mortgage calculator to figure out how much your monthly mortgage payments would be based on the prevailing 30-year interest rate.
Note that the calculator doesn't include additional expenses such as insurance, property taxes and private mortgage insurance, which is typically required for mortgages with less than a 20% down payment.
![](https://image.cnbcfm.com/api/v1/image/107331626-1699549250957-2023_1109_mf_makeIt_mortgageCalc.png?w=1920&h=1080)
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