Mortgage rates are dropping: What it means for Indianapolis homeowners and homebuyers

Homeownership is more than just a lofty American dream — it's how many can build generational wealth. For the Black community, 90% of wealth gains come from homeownership, meaning that owning a home continues to be a crucial method for Black households to build and accumulate wealth.

And while the Indianapolis housing market has been very competitive — with home prices up 3.6% year-over-year in July 2024, according to Redfin — home buyers who have been waiting on the sidelines for prices to become more affordable might see some relief soon. The Federal Reserve (the Fed), the U.S.' central bank that dictates interest rates, continues to indicate that a potential rate cut is on the horizon. Not only can this impact affordability for prospective buyers, but it could be advantageous for current homeowners that are locked into higher interest rates.

But what does this all mean? Elgin Wren, Chase Community Home Lending Advisor in Indianapolis answers some of your questions as it relates to prospective homebuyers and homeowners:

What role do interest rates play in buying a home?

Mortgages respond to market conditions, including the Fed's monetary policy. As interest rates climb, so does the interest on new mortgages and mortgage payments. Conversely, if rates fall, so does the interest on mortgages. So, buying at a lower rate can save you money on mortgage payments.

Should I wait to buy a home once interest rates fall?

Timing the market perfectly is not only challenging, but nearly impossible to do. While we hope the Fed will cut rates this year, it's never guaranteed. Lower interest rates can save you money, but they're not the only factor affecting affordability. So, instead of focusing on perfectly timing the market, we recommend leaning into what you can control: being financially prepared to buy a home.

Outside of readying your finances for homeownership, you can look for options that can lower costs and promote savings such as low-down payment mortgages, down payment assistance programs and grants. And don't forget you always can buy a home now and refinance in the future once rates drop.

How do I prepare myself to buy a home in this current environment?

At Chase, we not only want consumers to attain homeownership but to sustain it. That's why it's important to understand what exactly you can afford before getting into the market. You can visit Chase MyHome and use a variety of resources to help you prepare financially for buying a home. For instance, Chase MyHome offers an affordability calculator to see how much you can afford in the areas you're looking to buy, you can obtain a free credit score with Chase® Credit Journey as well as compare loan options. You'll also want to start compiling all your necessary documents for pre-approval, such as W2s, bank statements, income documentation, etc.

What about the down payment? Do I need to have 20% of the home cost saved up?

Most first-time home buyers are singularly focused on saving for a down payment. However, long gone are the days of putting down 20% of the purchase price — low-down payment loan options are available with some requiring as low as 3% down. Plus, there are a variety of incentives and grants that can lower your costs. For instance, Chase offers a homebuyer grant of up to $7,500, where eligible, to help with the interest rate, closing costs, and the down payment. These grants are offered in low- to moderate-income communities and neighborhoods that are designated by the U.S. Census as majority-Black, Hispanic and/or Latino.

Should I only work with one lender for my mortgage?

Studies show that 45% of borrowers who shopped around for mortgages received lower offers. Make lenders compete for your business — many have varying fees and closing costs that can add up. Also, interest rates can fluctuate daily, so lock in your rate with your lender if they offer that option for extra peace of mind. Chase's Homebuyer Advantage program allows customers to lock in their desirable rate for 90 days while they search for a home

I'm an existing homebuyer. How does a rate cut impact my situation?

It can be a good time to refinance when interest rates are going down, especially for those with rates above or at 7%. For current homeowners looking to refinance, we advise them to keep their end goal in mind as they consider whether refinancing makes sense for their personal situation. We always advise working with your local Chase Home Lending Advisor or using our Refinance Savings Calculator to understand when it makes sense for your specific situation to refinance.

Why should I refinance when rates are lower?

When interest rates are lower, you may be able to refinance your loan for a shorter term without seeing much of a change in your monthly payment. Even if your payments are higher, you may see significant savings over the life of your loan by making fewer interest payments. For example, you may decide to refinance a 30-year loan into a 15-year loan. While it has higher monthly payments, you'll pay the loan down faster and pay less in interest.

Whether we'll see a rate cut or not, there are many tools for first-time homebuyers and experienced owners to keep homeownership affordable and sustainable. Visit Chase.com/afford to start your journey, invest in your future and save in the long run.

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