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Last week’s Federal Reserve rate cut has led to a unique opportunity for homebuyers to secure more favorable mortgage rates. In the days leading up to the cut, mortgage rates began to drop, with lenders preemptively pricing in the expected reduction. This resulted in mortgage rates falling to a two-year low of 6.15%, easing some of the financial pressure on homebuyers.
While a 6.15% mortgage rate may not be as enticing as the 3% rates that were offered during the pandemic, it still represents a significant improvement from the latter part of 2023, when mortgage rates were hovering dangerously close to the 8% mark. But the 50-basis-point rate cut announced by the Fed, which exceeded many analysts’ expectations by twofold, further accelerated the downward trend, leading mortgage rates to fall to an average of 6.13%, where they currently sit.
For prospective homebuyers, this shift in the market presents an opportune moment to lock in a good rate on a mortgage loan. However, if you’re aiming to secure an even more favorable rate, there are several strategies you can use to potentially lock in a mortgage rate of 6% or lower now.
Start by seeing how low of a mortgage interest rate you’d be eligible for here.
How to get a 6% (or lower) mortgage rate right now
Here are three effective ways to secure a mortgage rate at or below 6% right now.
Buy mortgage points
One of the most straightforward ways to reduce your mortgage rate is by purchasing mortgage points. A mortgage point is essentially an upfront fee you pay to your lender at closing to reduce your interest rate over the life of the loan. One point typically costs 1% of your loan amount and generally reduces your interest rate by 0.25%, though this can vary by lender.
For example, if you’re looking at a $300,000 mortgage with a 6.13% interest rate, purchasing one point would cost you $3,000 but could bring your rate down to approximately 5.88%. The more points you buy, the more you lower your rate — though, naturally, this comes with a higher upfront cost.
That said, it’s important to assess how long you plan to stay in your home when considering this option. If you plan to stay in the property for several years or more, the upfront cost can be well worth the savings you’ll accumulate from a lower monthly payment. But if you’re not planning on living there for the long term, the cost of buying points may outweigh the interest savings.
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Opt for a 15-year mortgage loan
Another route to securing a lower mortgage rate is to choose a 15-year mortgage rather than the traditional 30-year loan. Right now, rates on 15-year mortgages are averaging around 5.49%, which is significantly lower than the 6.13% average for 30-year mortgage loans.
A shorter-term loan means you’ll be paying off the mortgage faster, which typically translates to less risk for the lender. In turn, lenders reward borrowers with lower interest rates. The downside is that your monthly payment will be higher because you’re repaying the loan in half the time, but the overall savings in interest over the life of the loan can be substantial.
For example, on a $300,000 mortgage, a 15-year loan at 5.49% would have higher monthly payments than a 30-year loan at 6.13%, but you’d pay far less in interest overall and build equity much faster. If you have the financial flexibility to manage a higher monthly payment, this is one of the most effective ways to get a mortgage rate under 6%.
Consider an ARM loan
Adjustable-rate mortgages (ARMs) offer another way to secure a lower rate. Unlike fixed-rate mortgages, ARMs offer an introductory period where the interest rate is fixed, generally for five, seven or 10 years. After that, the mortgage rate adjusts annually based on current market conditions.
The key benefit of an ARM is the lower initial rate, which averages 5.77% currently. And given that many analysts expect further Fed rate cuts in the near future, it’s possible that mortgage rates could drop even further, making ARMs an appealing option for those willing to take on a bit more risk.
However, it’s important to be cautious with ARM loans, as the rate can also increase after the fixed period ends (depending on the overall rate environment). This means your payments could rise significantly if interest rates climb in the future. But in a falling rate environment, such as the one we’re currently in, an ARM could offer substantial savings for the right borrower.
The bottom line
While today’s mortgage rates are much more favorable than they were just a few months ago, savvy buyers may be able to push their rates even lower by employing the strategies outlined above. Each of these approaches comes with its own pros and cons, so it’s important to evaluate your long-term financial goals, risk tolerance and future plans before deciding which strategy makes the most sense for you. But if you’re in the market for a home, this is a great time to explore your options.
