A 2024 Lending Outlook: Tips for Mortgage and Personal Loan Borrowers
The Federal Reserve Board indicated that it plans to cut rates three times this year — though the board hasn’t said exactly when that would happen. For borrowers, the rate cuts are good news; a lower benchmark rate leads to lower mortgage rates and can also affect personal and auto loans.
“Lower rates could benefit a lot of people,” says Rocco Diina, Northwest Bank Senior Vice President and Head of Mortgage Sales. However, with the timeline of the rate cuts uncertain, many borrowers may question how they should proceed. What do lower rates mean for consumers? Should you try to wait for lower rates? And what other factors impact your loan terms?
Diina and John Guidone, Northwest Bank Senior Vice President and Head of Consumer Lending, answer these questions and more, providing guidance for how to navigate your debt needs in a changing rate environment.
“Borrowers can’t control what the Fed does, but they can take action to ensure they’re prepared for the loan process,” Diina says.
Interest rates and mortgages
Prospective homebuyers are likely paying particular attention to interest rates. That’s because the Fed’s adjustment to the Federal Funds Rate (the interest rate banks charge each other to borrow money overnight) directly impacts mortgage rates. Rate cuts increase mortgage borrowers’ buying power, allowing them to borrow more money for less.
That’s welcome news, especially in regions of the country with high housing costs. “Any rate relief brings people back into the market,” Diina says. “It gives people a more realistic chance of getting into a home.”
But he cautions buyers against trying to time their home purchase with an interest rate reduction. People often sell and buy houses based on their family or job circumstances, which have their own timeline. What’s more, interest rate reductions can yield more competition among homebuyers, which can impact prices.
“The best approach is to buy a home when it fits with what’s happening in your life,” Diina says. “There’s no benefit in trying to wait for the perfect time.” He adds that mortgage borrowers aren’t anchored to one interest rate over the life of their mortgage. If and when interest rates drop, they can refinance into a loan that takes advantage of the lower rate.
The power of pre-approval
While timing the mortgage market is challenging, homebuyers can take some critical steps to ensure they’re ready when they find the perfect place. “Getting pre-approved before you begin seriously looking is important,” Diina says.
As noted, the residential real estate market can become more competitive as rates drop and buyer demand picks up. “Pre-approval can make a big difference when sellers are considering multiple buyers,” Diina says.
In addition, the pre-approval process can help uncover things that could save homebuyers money down the road.
For example, you might be able to improve your credit score, which can help you access better loan terms. The pre-approval process will provide some concrete data regarding how much you can afford to borrow. That information is powerful and might alter the types of houses and neighborhoods you’re considering.
Interest rates and personal and auto loans
How changing interest rates impact personal loans is a bit less direct, Guidone says. Personal loans tend to have higher rates than mortgages and those rates are based more on demand for the product and borrower risk. The circumstances of personal loan borrowers also come into play.
“Borrowers in this space aren’t waiting for interest rates to drop,” Guidone notes. Instead, they often need the cash to fund an immediate expense. Many personal loans have a fixed interest rate, so existing borrowers won’t see a change, even if rate cuts occur. Borrowers who have adjustable-rate loans could see their monthly payments lower, though that depends on the product and lender.
Personal loan borrowers often use the loans to consolidate existing debt, rolling balances from multiple high-interest credit cards into a relatively lower-rate personal loan. It’s a smart move that can save borrowers money, especially if the interest rate on the personal loan is significantly less than what they were previously paying.
“It’s an effective way to pay down debt,” Guidone says. “The key is not to fall back into the habits that led to the high debt in the first place.”
Auto loan borrowers could see lower rates later in the year if overall interest rates drop. But, much like homebuyers, car buyers often have an immediate need and may not have the ability to wait for lower rates. In the case of personal and auto loans, Guidone says that taking the time to improve your credit score can make a big difference in the loan products available to you.
The tech advantage
It’s hard to provide exact predictions of when interest rates will fall and how much. However, automated loan approval tools can provide borrowers with some certainty in a changing rate environment.
Take advantage of Northwest Bank’s technology to get pre-approved for personal loans or pre-qualified for a mortgage. You’ll receive meaningful information that will accelerate your loans and inform your purchase.
“You go into the process knowing what you can afford and how far your money will go,” Diina says. “The technology gives you an edge that lets you make even smarter decisions about your personal finances.”
Interested in learning more about how interest rates may impact your borrowing decisions? Connect with Northwest Bank’s loan and mortgage experts today.
