If you’re ready to buy a home, getting a low mortgage rate is one of the biggest must-haves. Having a low mortgage rate can make your monthly payment lower, help you afford a bigger home or a better location, and give you flexibility in your monthly budget or for long-term financial goals.
Mortgage rates are affected by multiple factors, such as overall interest rates, your credit score, the price of the home that you want to buy, and more. As of Aug. 31, 2024, some of the best mortgage rates are as low as 6.219% APR for a 30-year fixed rate mortgage.
Let’s look at a few reasons why it’s always good to have a low mortgage rate.
1. Lower monthly mortgage payment
Perhaps the biggest benefit of a low mortgage rate is that it can help you get a lower monthly mortgage payment. Your exact monthly payment will be based on the length of your mortgage; for example, if you choose a 15-year mortgage, your monthly payment will be bigger than with a 30-year mortgage for the same purchase price of a home.
But if you can get a lower mortgage rate on the same size and term of a mortgage loan, your monthly payment can be significantly lower. Here’s how the monthly payment changes on a $400,000 home with a 20% down payment ($80,000) and a 30-year fixed rate mortgage, if you reduce the interest rate.
| Mortgage Interest Rate | Monthly Payment |
|---|---|
| 7.50% | $2,746 |
| 6.50% | $2,532 |
| 5.50% | $2,325 |
| 4.50% | $2,130 |
Data source: Author’s calculations
Getting a lower mortgage rate can help reduce the monthly mortgage payment on a typical home by hundreds of dollars per month.
2. Bigger home-buying power
The Fed is likely to start cutting interest rates in September 2024, and that could be good news for home buyers. That’s because lower interest rates confer more buying power. If your interest rate is low, you can get a lower monthly payment on a higher-priced home.
Low mortgage rates can be good news for home sellers, too. Sellers can often command a higher price when buyers have affordable mortgage rates and feel confident stretching their budgets a bit further to buy the home of their dreams. Cheaper mortgage rates are good news for anyone who’s in the market to buy or sell a home.
3. Ability to pay off the home sooner or pursue other investments
When your mortgage rate is low, this doesn’t just give you a lower monthly payment. It also gives you more financial flexibility for how to spend, save, and invest into the future. Saving hundreds of dollars per month on mortgage interest can give you options for how to use your money for other financial goals and investments, such as:
- What if you want to pay off your mortgage earlier?
- What if you want to free up a few hundred dollars in your monthly spending to take a vacation?
- What if you want to remodel your home and perhaps boost its value for resale?
- What if you want to invest more money for retirement?
Having a lower mortgage rate frees up cash flow and can help you dream big about your financial goals.
Bottom line
The Fed might be cutting the federal funds rate starting in September 2024. That impacts consumer interest rates, meaning mortgage rates could continue to come down in late 2024 and into 2025. If mortgages get cheaper, home buyers will have better options for how to finance a home.
Low mortgage rates can give you lower monthly payments and help you save thousands of dollars over the life of your loan. Saving money on your mortgage is always good news, especially if it helps you free up more cash to invest for retirement and other financial goals.
