As many experts expected, the Federal Reserve held interest rates steady at the most recent policy-setting meeting. This is the fourth consecutive meeting in which the central bank decided to skip an interest rate hike, meaning the federal funds rate will remain at a target range of 5.25% to 5.5%, the highest it’s been in 23 years.
“Recent statements from top Fed officials that inflation is inching closer to the Fed’s 2% target level likely means that further interest rate increases will remain on hold for now. This also supports the growing expectations that the Fed will begin lowering interest rates at some point in 2024, though the timing remains uncertain," Michele Raneri, vice president of U.S. research and consulting at TransUnion tells Kiplinger. "The prospect of future rate reductions is particularly important at a time when US consumers continue to take on historically high levels of debt, particularly on credit cards, as lower interest rates may allow for some of them to refinance that debt and put more money in their pockets."
The Federal Reserve saw three interest rate cuts in 2024, and at its December meeting, lowered its median interest-rate projection for the end of 2024 to 4.6%. However, rate cuts likely won't occur as early as March like many expected. In the official press release, the Fed stated: "The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent."
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Currently, the 30-year mortgage rate is at 6.94%, compared to 6.90% last week and 6.50% last year. Overall, this is lower than the long-term average of 7.73%.
Find the best mortgage rates
Currently, as mentioned above, the average interest rate for a 30-year fixed mortgage is at 6.94%. Last month, the average rate for 30-year fixed mortgages was lower, at 6.69%.
Additionally, the interest rate for a 15-year fixed mortgage is at 6.26%, compared to 6.29% a week ago and up from 5.76% last year. This is higher than the long term average of 5.22%. Rates for 15-year fixed mortgages last month were 5.96%.
Use our tool, in partnership with Bankrate, to compare current mortgage rates available for purchase and refinancing.
Four ways to get a lower mortgage rate
- Raise your credit score: One of the best and most effective ways to save on your mortgage is to raise your credit score, the biggest factor in determining your mortgage rate. Upping your FICO credit score, which ranges from 300 to 850, by just 20 points can save you hundreds of dollars by lowering your mortgage. So, while you’ll likely need at least a 620 FICO score in order to qualify for a mortgage at any rate, you'll need a higher score to get approved for the best rates. Raising your credit score can be done in a number of ways, including making card payments on time and keeping balances low.
- Increase your down payment: In order to get the best rates on a conventional mortgage loan from Fannie Mae or Freddie Mac, you'll need to make at least a 20% down payment. In fact, the bigger your down payment is, the better your rate will likely be. You'll have to repay less principal and less interest over the life of the loan.
- Get multiple quotes: Different lenders may offer different rates. Because of this, it's important to get multiple quotes to ensure you're getting the lowest interest rates available for you.
- Consider an adjustable-rate mortgage (ARM): if you know you're going to sell your home in the near future, opting for an ARM could be a good decision. For example, if you're going to sell your home in four years, choosing a 5 year ARM could save you a lot in interest. You'll be able to take advantage of the lower interest rates associated with this kind of mortgage, and won't have to worry about your rate changing before you sell.
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