The Fed’s choice to halt increases to its benchmark rate doesn’t have a direct effect on the interest rates offered to consumers for loans and savings products. However, these rates typically move in sync with the federal funds rate. Let’s explore the potential outcomes following this recent pause…
Mortgage rates have the potential to decrease further following the recent pause. Given that the next Fed meeting is not until the end of January, there is ample time for rates to adjust in response to this pause before any further actions are considered.
Rate cuts in 2024 could provide relief for homebuyers. Although the Federal Reserve chose not to lower rates in December, Chair Jerome Powell expressed his anticipation for cuts in the coming year. Powell projected that the federal funds rate would reach 4.6% by the end of 2024, indicating a potential 0.75% reduction. If implemented, these rate cuts, likely spread across three meetings, could lead to significant decreases in interest rates for mortgage borrowers. While it is unlikely that rates will return to pre-hike levels, where some buyers secured rates below 3%, this would still offer much-needed relief and enable those previously priced out of the market to reenter.
Refinancing rates may also decrease.
The rates for individuals seeking to refinance their homes have recently experienced a decline. On November 1, the average rate for a 30-year refinance was 8.15%, while for a 15-year refinance it stood at 7.54%. Presently, those rates have decreased to 7.45% and 6.72%, respectively.
Similar to the rates for new mortgage purchases, refinancing rates may continue to decrease in the upcoming months due to the rate pause. Furthermore, they could potentially decrease even further next year when the Fed begins to cut rates.
Lower refinancing rates could provide relief for those who purchased a home within the past year and are burdened by high rates. Although refinancing does involve expenses such as closing costs and other fees, the opportunity to reduce monthly payments may be worthwhile for homeowners who bought during the peak of the high-interest period.
The Fed has opted to halt interest rates today for the third time in a row. This choice is expected to have a significant impact on various sectors of the economy, particularly the mortgage market. As a result of this pause, mortgage interest rates may further decrease, and there is a possibility of even greater reductions next year when the Fed initiates rate cuts. This also applies to mortgage refinancing, which could be beneficial for individuals who purchased homes during periods of higher rates.
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