Today's Mortgage Rates | The Fed Made a Cut. Mortgage Rates Went Up Anyway.

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• Mortgage rates for December 20, 2024, are up near 6.60%.
• Rates are around 15 basis points higher than they were before Wednesday's Fed meeting.
• Expectations of fewer Fed cuts in 2025 have pushed mortgage rates up, and they may not drop as much next year.

Mortgage rates jumped following the Federal Reserve's final meeting of the year, where the central bank announced it cut the federal funds rate by 25 basis points.

If the Fed cut rates, why did mortgage rates go up? Borrowers are sometimes surprised by the ways mortgage rates respond to Fed moves, but investors typically price in increases or decreases to the federal funds rate well ahead of the actual cut. Unless the Fed does something unexpected, mortgage rates don't move much following the actual announcement.

What did move mortgage rates this week was the release of updated economic projections from Fed policymakers. Though they were initially anticipating four rate cuts in 2025, they've now updated their projections to just two cuts.

The less the Fed cuts, the less mortgage rates will go down. Inflation has been sticky in recent months, meaning the central bank will need to be more cautious when considering rate cuts in 2025. According to CME FedWatch, investors think it's possible we could only get one Fed cut next year.

What Are Today's Mortgage Rates?

What Are Today's Mortgage Refinance Rates?

Mortgage Calculator

Use our free mortgage calculator to see how today's mortgage rates will affect your monthly and long-term payments.

By plugging in different term lengths and interest rates, you'll see how your monthly payment could change.

Current 30-Year Mortgage Rates

Average 30-year mortgage rates are hovering around 6.60%, according to Zillow data. Rates increased to 6.56% in November.

The 30-year fixed-rate mortgage is the most popular home loan. With this type of mortgage, you'll pay back what you borrowed over 30 years, and your interest rate won't change for the life of the loan.

The lengthy 30-year term allows you to spread out your payments over a long period of time, meaning you can keep your monthly payments lower and more manageable. The trade-off is that you'll have a higher rate than you would with shorter terms, like a 15-year mortgage.

Current 15-Year Mortgage Rates

Average 15-year mortgage rates are right aroung 6%, according to Zillow data. In November, 15-year rates averaged 5.92%.

If you want the predictability that comes with a fixed rate but are looking to spend less on interest over the life of your loan, a 15-year fixed-rate mortgage might be a good fit for you. Because these terms are shorter and have lower rates than 30-year fixed-rate mortgages, you could potentially save tens of thousands of dollars in interest. However, you'll have a higher monthly payment than you would with a longer term.

Current Mortgage Refinance Rates

Refinance rates have been similar to purchase rates recently. Last month, 30-year refinance rates averaged 6.62%, while 15-year refinance rates were around 5.96%.

How Much Do Mortgage Rates Need to Drop to Refinance?

If you're wondering if you should refinance now, you'll need to crunch the numbers to see if it makes sense. Some experts advise only refinancing if you can reduce your rate by a percentage point or more, but it really comes down to whether it works for your individual circumstances.

If you can save enough each month by refinancing that you can recoup your costs in a reasonable amount of time, it might be worth it. You can calculate this by dividing your closing costs by the amount you're saving on your monthly mortgage payment. So, if you paid $3,000 to refinance and were able to lower your monthly payment by $200, it would take you 15 months to break even on your refinance.

5-Year Mortgage Rate Trends

Here's how 30-year and 15-year mortgage rates have trended over the last five years, according to Freddie Mac data.

What Factors Influence Mortgage Rates?

Mortgage rates are determined by a variety of different factors, including larger economic trends, Federal Reserve policy, your state's current mortgage rates, the type of loan you're getting, and your personal financial profile.

While many of these factors are out of your control, you can work on improving your credit score, paying off debt, and saving for a larger down payment to ensure you get the best rate possible.

How Does the Fed Rate Affect Mortgage Rates?

The Fed increased the federal funds rate dramatically in 2022 and 2023 to try to slow economic growth and get inflation under control. Inflation has since slowed significantly, but it's still slightly above the Fed's 2% target rate.

Mortgage rates aren't directly impacted by changes to the federal funds rate, but they often trend up or down ahead of Fed policy moves. This is because mortgage rates change based on investor demand for mortgage-backed securities, and this demand is often impacted by how investors expect Fed policy to affect the broader economy.

Fed officials lowered the federal funds rate three times this year, and they may cut a couple more times in 2025. So we could see mortgage rates drop a bit next year, but probably not enough to substantially improve affordability.

When Will Mortgage Rates Go Down?

Most major forecasts expect mortgage rates to go down, but they may not drop a lot in the near term. We could see rates fall a bit in 2025.

Mortgage rates started ticking up from historic lows in the second half of 2021 and increased dramatically in 2022 and throughout most of 2023. But now that inflation has decelerated and the Fed has started cutting rates, mortgage rates have trended down compared to where they were a year ago. In the last 12 months, the consumer price index rose by 2.7%. This is a significant slowdown compared to when it peaked at 9.1% in 2022, but it's a slight uptick from the previous month.

How much rates go down depends on how the economy evolves. If economic conditions remain stable, mortgage rates may not fall as much.

Rates are unlikely to drop back down to the historic lows of 2020 and 2021, when 30-year fixed rates fell below 3%. But we could see them settle in closer to 6% by the end of next year.

Will Home Prices Drop in 2025?

We aren't likely to see home prices drop anytime soon thanks to extremely limited supply. But the good news is that price growth is likely to moderate in 2025.

Fannie Mae researchers expect prices to increase 3.6% in 2025, a slowdown from this year's pace, while the Mortgage Bankers Association expects a 1.5% increase in 2025.

How to Choose a Mortgage

You have a lot of options when it comes to finding the right type of mortgage for you. First, you'll need to decide if you want a fixed-rate mortgage or an adjustable-rate mortgage.

Fixed-rate mortgages lock in your rate for the entire life of your loan. Adjustable-rate mortgages lock in your rate for the first few years, then your rate can go up or down periodically based on market conditions.

Fixed-Rate vs. Adjustable-Rate Mortgage Pros and Cons

How do you choose between a fixed-rate vs. adjustable-rate mortgage?

ARMs often (but not always) start with lower rates than fixed-rate mortgages, but ARM rates change once your fixed-rate introductory period is over. If you plan on moving or refinancing before the rate adjusts, an ARM could be a good deal. But keep in mind that a change in circumstances could prevent you from doing these things, so it's a good idea to think about whether your budget could handle a higher monthly payment.

Fixed-rate mortgages are a good choice for borrowers who want stability, since your monthly principal and interest payments won't change throughout the life of the loan (though your mortgage payment could increase if your taxes or insurance go up).

But in exchange for this stability, you may get a higher rate. This might seem like a bad deal right now, but if rates increase further down the road, you might be glad to have a rate locked in. And if rates trend down, you may be able to refinance to snag a lower rate.

Conventional vs. Government-Backed Mortgages

Conventional mortgages are home loans that aren't backed by a government agency. They're often a good option for borrowers with strong credit scores. Conventional loans allow down payments as low as 3%, though putting at least 20% down will allow you to avoid paying for private mortgage insurance.

The main types of government-backed mortgages are:

• FHA loans: Allow credit scores down to 580 and 3.5% down payments
• VA loans: Require no down payment, but are only available to veterans and military members who meet minimum service requirements
• USDA loans: Also allow 0% down for low-to-middle income borrowers who live in an eligible rural or suburban area

Government-backed mortgages are often a good choice for borrowers with low credit scores, first-time homebuyers, or those who don't have a lot of money saved for a down payment. They also typically have lower mortgage rates compared to conventional loans.

Choosing a Term Length

You'll also need to decide what term length you want. Your mortgage term is how long you have to pay back the loan. Most borrowers get a 30-year term, since it's the longest term available and results in the lowest monthly payment.

Shorter terms, like a 15-year mortgage, can be a good option if you're looking to save money on interest. But because you're paying off the loan in half the amount of time you have with a 30-year mortgage, your monthly payments will be much higher.