Homebuyers, do you finance now or wait for Fed to drop rates?

Can you make homeownership more affordable by waiting out an interest rate drop?

Plenty of borrowers are sitting on the sidelines waiting for home prices to flatten or drop further in ZIP codes already experiencing drops.

Buyers are also expecting the Federal Reserve to drop short-term interest rates. (Long-term mortgage rates are not directly related to short-term rates but may be indirectly influenced by short-term rates going down.)

So, buyers essentially are hanging onto this one-two punch for more affordability: cheaper prices and cheaper payments.

A lot of refinance candidates with mortgage rates over 6.75% are sitting on the fence, waiting for the Fed to further drop mortgage rates at its Oct. 28-29 meeting. Economists expect central bankers to drop short-term rates by 25 basis points and another quarter-point during its Dec. 9-10 meeting.

On top of all that, President Donald Trump continues to posture about picking an interest rate reduction-friendly person as the new Federal Reserve chair when Jerome Powell’s term ends Jan. 31, 2026.

But for homebuyers and those pondering a refinance, today we’ll explore the risks and rewards of waiting to lock a rate.

Buyer risks

If buyers are waiting for prices to drop and mortgage rates to drop, let me first state the obvious. Home prices could stabilize or even increase, depending on the ZIP code.

Mortgage rates may not go down, even if the Fed drops short-term rates. Why? There are still inflation pressures hanging around from the price of goods and services related to the tariff conundrum. Fed rate cuts don’t guarantee any improvement in long-term mortgage rates.

Rewards for waiting

Home prices may drop a little or a lot. Though, if interest rates drop, it’s likely to have the opposite effect and home prices will stabilize or rise as payment affordability improves.

My recommendation for homebuyers is to keep your eyes peeled now. That is, if you find a well-priced, turnkey property today, then jump on it. As there are few well-priced turnkey properties out there. Rather there are too many are overpriced turkeys.

If you can’t find the optimal property, just wait. It seems that home prices continue to flatten or soften in most areas.

I personally believe mortgage rates will come down. The trick is to find a good property to buy before the stampede of other buyers comes out once again as rates drop. Once that happens, prices are sure to firm up and go up.

Remember, you can always refinance later should rates come down later. Real estate agents are famous for saying, “Marry the property, date the rate.”

Refinance risk

The risks for those who want to refinance their loans are more complicated than just waiting for rates to drop.

For example, let’s say you have an $800,000 loan balance on a 30-year fixed rate at 7.25%. The principal and interest payment is $5,457. Let’s assume you can get a 30-year fixed rate at 5.75% with 1 point cost and $4,500 of hard costs. The principal and interest payment is $4,669. The monthly payment savings are $788.

Let’s say instead of pulling the trigger now, you wait for mortgage rates to come down. And maybe they do but maybe they don’t. And maybe they go up instead of going down due to an inflation spike. It’s risky business after all.

For sake of argument, let’s assume the 30-year fixed rate goes down to 5.25% eight months from now.

With the identical closing costs of 1 point and $4,500 the principal and interest payment is $4,417. That’s $1,040 monthly savings compared with the original 7.25% interest rate vs. the $788 monthly savings at 5.75%. That’s an additional monthly payment savings of $252 for those who wait.

Had the borrower pulled the trigger today, he or she would have saved $6,304 ($788 times 8 months).

It would take 25 months to break even by waiting the eight months to refinance ($6,304 divided by $252).

My suggestion is to not wait for rates to come down further, so long as you are improving your mortgage rate by at least 1% when you are paying for closing costs.

If you can get a no-cost loan and you can reduce your rate by at least one-half percent, then go for it.

If rates come way, way down later, I suppose you can always refinance again.

Freddie Mac rate news

The 30-year fixed rate averaged 6.19%, 8 basis points lower than last week. The 15-year fixed rate averaged 5.44%, 8 basis points lower than last week.

The Mortgage Bankers Association reported a .3% mortgage application decrease compared to one week ago.

Bottom line: Assuming a borrower gets an average 30-year fixed rate on a conforming $806,500 loan, last year’s payment was $185 more than this week’s payment of $4,934.

What I see: Locally, well-qualified borrowers can get the following fixed-rate mortgages with one point: A 30-year FHA at 5.25%, a 15-year conventional at 4.99%, a 30-year conventional at 5.625%, a 15-year conventional high balance at 5.5% ($806,501 to $1,209,750 in LA and OC and $806,501 to $1,077,550 in San Diego), a 30-year high balance conventional at 5.99% and a jumbo 30-year-fixed at 5.99%.

Eye-catcher loan program of the week: A 30-year mortgage, fixed for the first five years at 5.5% with 30% down payment and 1 point cost.  .Jeff Lazerson, president of Mortgage Grader, can be reached at 949-322-8640 or jlazerson@mortgagegrader.com.

Originally Published: October 23, 2025 at 10:41 AM PDT