Will Mortgage Rates Go Down In December?

irina88w/GettyImages; Illustration by Hunter Newton/Bankrate

The Federal Reserve might — or might not — cut interest rates again in December. Either way, mortgage rates remain near their lowest levels in more than a year.

While the Fed doesn’t directly control mortgage rates, it does set the overall tone. The central bank has cut its benchmark rate twice this year so far; it next meets Dec. 9-10.

Until there’s more economic clarity, don’t expect mortgage rates to move meaningfully in either direction.

— Stephen Kates
Financial Analyst, Bankrate

As of Nov. 25, the average 30-year mortgage rate was 6.32%, according to Bankrate’s weekly lender survey. 

“A rate cut is looking increasingly likely at the Federal Reserve’s December meeting, but that doesn’t necessarily mean mortgage rates will fall,” says Stephen Kates, a financial analyst at Bankrate. “We’re still operating in a data vacuum due to the government shutdown, and inflation data, which heavily influences long-term interest rates, won’t be available until later this month. Until there’s more economic clarity, don’t expect mortgage rates to move meaningfully in either direction.”

Lisa Sturtevant, chief economist at Bright MLS, a listing service in the mid-Atlantic region, disagrees about Fed policy but not about the direction of mortgage rates. “A lack of data has left the market with a cloudy picture of the economy, which in turn has pushed rates higher in recent weeks,” Sturtevant says. “A December rate cut by the Federal Reserve, which felt like all but a certainty earlier this fall, is now much less likely. With the release of a range of backlogged economic data and uncertainty over the Fed’s position on cutting rates next month, we will likely see volatility in mortgage rates through the end of the year.”

Will mortgage interest rates go down again?

The possibility of sub-6 percent mortgage rates has grown somewhat stronger. Both the Mortgage Bankers Association and Fannie Mae predict rates will end the year at 6.3%.

Current mortgage rate trends

Higher mortgage rates have kept homeowners clinging to lower-cost loans, a trend known as the lock-in effect. Meanwhile, the median national home price clocked in at $415,200 in October, a record high for the month, according to the National Association of Realtors.

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What to do if you’re getting a mortgage this year

• Improve your credit score. A lower credit score won’t prevent you from getting a loan, but it can make all the difference between getting the lowest possible rate and more costly borrowing terms. The best mortgage rates go to borrowers with the highest credit scores, usually at least 780.
• Save up for a bigger down payment. Putting more money down upfront can help you obtain a lower mortgage rate, and if you put down at least 20% of the purchase price, you’ll avoid mortgage insurance, which adds costs to your loan. If you’re a first-time homebuyer and can’t cover a 20% down payment, there are loans, grants and programs that can help. The eligibility requirements vary by program but are often based on factors like your income.
• Understand your debt-to-income ratio. Your DTI ratio compares how much money you owe to how much money you make, specifically your total monthly debt payments against your gross monthly income. Not sure how to figure out your DTI ratio? Bankrate has a calculator for that.

FAQs

• How are mortgage rates determined?
  

  Mortgage rates are not directly set by any one entity; they grow from a complicated mix of economic factors. Lenders typically set their rates based on the return they need to make a profit after accounting for risks and costs. The Federal Reserve gets a lot of attention, but it doesn’t directly set mortgage rates, either. The closest proxy for mortgage rates is the 10-year Treasury yield: Historically, the typical 30-year mortgage rate has been about 2 percentage points higher than the 10-year Treasury yield. But since the pandemic, that “spread” has been closer to 3 percentage points.

• When should I refinance my mortgage?
  

  Deciding when to refinance is based on many factors. If rates have fallen since you took out your mortgage, refinancing might make sense. A refi can also be a good idea if you’ve improved your credit score and could lock in a lower rate. A cash-out refinance can accomplish that as well, plus give you the funds to pay for a home renovation or other expenses.