3 mortgage rate mistakes to avoid this July
Mortgage rates have been high in recent years, hitting their highest level since 2000 in August 2023. Thanks to a combination of the pandemic, inflation and the Federal Reserve's efforts to tame spending, interest rates for all borrowing products surged. And mortgage rates were no exception. But as inflation has steadily cooled from a decades-high in June 2022, anticipation surrounding a cut to the federal funds rate has grown. And while the Fed doesn't directly dictate what rates lenders offer borrowers, an interest rate cut will undoubtedly affect what homebuyers and homeowners looking to refinance spend on their loans.
Against this backdrop, it's critical that both groups carefully consider their mortgage rate options before taking action. And they should do their due diligence to avoid some simple but easy-to-make mistakes this July specifically, as interest rate cut speculation grows. To that end, below we'll break down three timely mortgage rate mistakes to avoid this this month.
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3 mortgage rate mistakes to avoid this July
While it's critical to know which approaches to take when buying a home (or refinancing an existing mortgage), it's equally important to know which errors to avoid. This July, those mistakes include:
Not monitoring the rate climate
The next inflation report will be released by the Bureau of Labor Statistics on July 11 and the next Federal Reserve meeting to discuss interest rates will begin on July 31. Either has the power to change interest rates, perhaps dramatically so. A cooling inflation rate could spur lenders to start offering lower rates in anticipation of a formal rate cut to come and that formality could occur at the end of the two-day Fed meeting. But if you don't monitor the overall rate climate, particularly on these dates and on the dates surrounding them, you may miss an opportunity to capitalize on the lower rate offers.
Learn more about where mortgage rates could be heading online today.
Locking in a fixed rate
A fixed rate is often a smart way to hedge against future rate increases and, with it, additional costs. But in today's rate climate in which multiple rate cuts could be coming, it's arguably a mistake for some borrowers to lock in a fixed rate.
Instead, an adjustable-rate mortgage (ARM) may be preferable. This mortgage type will adjust over time and that adjustment could provide a lower rate in the short term versus having to complete a traditional mortgage refinance to secure that better rate if you had a fixed mortgage loan. An adjustable-rate mortgage isn't for everyone and it comes with inherent risks but it would be a mistake to not investigate it now, especially with interest rate cuts appearing more likely.
Not shopping around for lenders
It's always a mistake to not shop around for lenders, particularly for products like mortgages, when hundreds of thousands of dollars are at stake. But it's a particularly critical mistake to avoid in the changing rate climate of July 2024. By shopping for a lender you can potentially save half a percentage point or more. That will result in significant savings, both in your monthly payment and over the lifespan of your loan. But you won't realize those savings without shopping around to find a lender with the lowest rates and best terms. And remember: You don't necessarily have to refinance with the same lender you purchased your home with.
Start shopping for lenders and rates here now.
The bottom line
With the prospect for a lower rate climate growing in likelihood, both homebuyers and current homeowners looking to refinance should take a judicious and nuanced approach to the mortgage rate environment, including the avoidance of simple but costly errors. This includes not monitoring the evolving rate climate for new, lower-rate opportunities, locking in a fixed rate versus a potentially lower, adjustable-rate mortgage instead and not shopping around for the lowest rate and most competitive terms. By sidestepping these mistakes now, buyers and owners will improve their chances for mortgage rate success, both this July and in the months ahead.