Mortgage interest rates just hit their lowest level since 2022, encouraging borrowers to act strategically now.
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After years of elevated borrowing costs, mortgage interest rates have just taken a sharp turn lower, and homeowners and buyers are taking notice. According to the latest rate data from the Mortgage News Daily, 30-year fixed mortgage rates have dropped to an average of 6.13%. That's the lowest level in three years, and represents a steep decline from the 7% (or higher) rates that defined much of the housing market over the past two years.
The shift has already sparked activity. As a result of the rate drop, both mortgage loan applications and mortgage refinancing applications have surged, according to the Mortgage Bankers Association's seasonally adjusted index, and prospective homebuyers are suddenly revisiting home listings that once felt out of reach. For anyone who's been sidelined by higher home borrowing costs, this drop offers a new opportunity.
The question now, though, is what's driving the drop in mortgage rates, and what should you do with this opportunity? That's what we'll examine below.
See how low your current mortgage rate offers are here.
Why mortgage interest rates just fell to a 3-year low
The timing of this mortgage interest rate drop isn't coincidental. The Federal Reserve is widely expected to cut interest rates for the first time in 2025 at today's meeting, and the bond market has already reacted in anticipation. Yields on 10-year Treasury notes — a key benchmark for mortgage rates — have slid in recent weeks, pulling mortgage costs down with them.
In other words, the current mortgage interest rate environment reflects a classic case of "buying the rumor." The Fed is widely expected to slash rates today by either 25 or 50 basis points, and while the Fed's rate decisions don't drive mortgage loan pricing, they do have an impact on where mortgage rates head next. So, this drop is the financial markets' way of pricing in what they think is coming from the Fed.
But while the macro story explains the "why," the bigger issue for borrowers is the "what next." Here are some key steps to consider taking in today's lower mortgage rate environment:
Compare lenders to lock in the best deal
Even when national averages drop, the actual rate you're offered can vary significantly from one lender to the next. Online lenders, local banks and credit unions may all quote different rates and closing costs, and the spread can add up to thousands of dollars over the life of your loan. Shopping around is one of the easiest ways to take advantage of the current low-rate environment — and locking in a rate quickly can protect you if markets shift again.
Start comparing mortgage lenders and loan offers here.
Check your credit before applying
Lenders typically reserve their lowest advertised rates for borrowers with strong credit profiles. If your score is in the high 700s or above, you're likely to qualify for the most competitive offers. If not, you could face higher costs, even with today's market drop. So, pull your credit reports, take steps to correct any errors, and, if possible, pay down revolving debt before applying. These steps can move your score in the right direction and save you money long term.
Get preapproved if you plan to buy
With demand expected to pick up as mortgage rates fall, competition among buyers could intensify. Getting preapproved for a mortgage loan signals to sellers that you're serious and financially prepared, which can give you an edge in a bidding war. Preapproval also clarifies your borrowing limit, making it easier to search for homes that fit your budget.
Consider refinancing if your current rate is high
Millions of homeowners locked in mortgages at rates above 7% in 2023 and 2024. For these homeowners, today's average rates could represent meaningful monthly savings. A mortgage loan refinance can reduce your monthly payment, cut interest costs over time or even allow you to pay off your loan faster by switching to a shorter term. Just be sure to factor in closing costs and weigh how long you plan to stay in your home before deciding if refinancing makes sense.
Don't overlook adjustable-rate loans
Adjustable-rate mortgages (ARMs) have made a comeback as borrowers seek lower initial payments. With mortgage rates now at multi-year lows, some buyers may want to consider a 5/1 or 7/1 ARM, especially if they don't plan to stay in their home long term. These loan products can offer a significantly lower starting rate than fixed loans, though they carry risks if rates rise again in the future. It's a strategy worth weighing carefully if you fit this borrower profile.
The bottom line
Mortgage rates haven't been this low in three years, creating a rare opportunity for both buyers and existing homeowners. The drop is tied to shifting economic conditions and market expectations of Fed action, but the window of opportunity could be temporary. So, if you've been holding off on buying a home or refinancing your current mortgage, now may be the time to act. Just remember that the best results come from being proactive. Compare offers, polish your credit and secure financing now, before demand heats up again.
Angelica Leicht is the senior editor for the Managing Your Money section for CBSNews.com, where she writes and edits articles on a range of personal finance topics. Angelica previously held editing roles at The Simple Dollar, Interest, HousingWire and other financial publications.
