5 big reasons to lock in a mortgage rate right now

The past few years have been rough for prospective homebuyers. As mortgage rates climbed in tandem with the Federal Reserve's benchmark rate, many would-be buyers found themselves in a holding pattern, watching from the sidelines as they waited for the right time to enter the market. And that decision may have seemed even more prudent when mortgage rates touched on 8% in October 2023 — the highest they'd been in over two decades. 

However, recent shifts in the economic landscape have begun to change this calculus. Inflation is showing signs of cooling, and we're seeing a corresponding dip in mortgage rates. This trend is largely driven by expectation of a future rate cut by the Federal Reserve, which is now expected to slash rates just one time in 2024. 

But that Fed rate cut may not happen for several more months, and you may not want to wait until the Fed rate cut to make your move anyway. It could make more sense to get started now and lock in a mortgage rate immediately.

Find out what today's top mortgage rates are right now.

5 big reasons to lock in a mortgage rate right now

Here are a few reasons why locking in your mortgage rate now might be a smart move:

Mortgage rates are at a four-month low

The average 30-year fixed mortgage rate currently stands at 6.77%, the lowest it's been in four months. This represents a significant drop from the recent peak of above 8%. For prospective buyers, this decrease could translate to substantial savings over the life of a loan.

To put this into perspective, on a $300,000 mortgage the difference between an 8% rate and a 6.77% rate is about $260 per month. Over a 30-year term, that adds up to savings of nearly $94,000. This dramatic difference underscores why many buyers who were priced out of the market just a few months ago may now want to reconsider their options.

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Waiting could be risky

While the current trend in mortgage rates is encouraging, it's important to remember that the economic landscape can shift quickly. Inflation, which has been stubbornly persistent recently, could still potentially tick back up. If this happens, we could see mortgage rates climb again.

The Federal Reserve has indicated that it plans to keep interest rates elevated until inflation is firmly under control. While many economists predict a rate cut will happen in 2024, the timing and extent of these cuts remain uncertain. By locking in a rate now, you protect yourself against potential future increases, should they occur.

Home inventory remains limited in most markets

While some markets have seen improvements in inventory, the availability of for-sale homes remains tight in many areas. And if mortgage rates continue to drop, more buyers are likely to enter the market, which could further exacerbate inventory issues.

In a low-inventory environment, desirable properties often receive multiple offers and sell quickly, which could make it tough to land a contract on a home. But by securing a mortgage rate now, you put yourself in a position to act swiftly when you find a home that meets your needs. This could be crucial in competitive markets where even a day's delay might mean missing out on a property.

Future refinancing is an option if rates drop further

One concern some buyers have about locking in a rate now is the possibility of missing out if rates continue to fall. However, it's important to remember that refinancing is always an option if rates decrease significantly in the future.

While refinancing does come with some costs, these are often outweighed by the potential savings if rates drop substantially. And by locking in now, you secure a rate that works for your current budget while maintaining the flexibility to take advantage of potentially lower rates in the future.

There's potential for future appreciation

While no one can predict the future of the housing market with certainty, historical trends show that real estate tends to appreciate over time. That's been especially true over the last few years, as the lack of home inventory has helped home values climb substantially, vastly increasing the amount of equity the average homeowner has in their home. 

By locking in a mortgage rate and purchasing a home now, you can start building home equity. Each monthly mortgage payment you make lowers the amount you owe on your loan, increasing your equity. 

Should home values continue to climb, that will only add to the equity equation. But even if home prices remain stable or see modest declines in the short term, the long-term trend has typically been upward, so it likely won't hurt to start the process now.

The bottom line

While the decision to buy a home is deeply personal and depends on your circumstances, the current economic conditions present a compelling case for locking in a mortgage rate now. After all, the combination of lower interest rates, limited housing inventory and the potential for future market changes creates a window of opportunity for those who are prepared to act.

However, it's crucial to consider this decision carefully. Your financial situation, job stability and long-term plans should all factor into your decision. Remember, the goal isn't just to buy a home, but to do so in a way that aligns with your financial goals and lifestyle needs.