3 Mistakes You Must Not Make If Mortgage Rates Drop
Written by
Adam Palasciano
Edited by
Ashleigh Ray
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Buying a home in today’s market is expensive to say the least, but with mortgage rates potentially trending downward in the new year, many prospective buyers are feeling hopeful again. However, there is a catch: lower rates don’t automatically mean a better deal. In fact, rushing into a mortgage without a smart strategy can cost you thousands over time.
Whether you’re a first-time buyer or planning to refinance, it’s crucial to avoid common pitfalls that can derail your financial goals. Here are three mortgage mistakes you must not make if interest rates drop, and how to make the most of this opportunity to secure a better home loan in 2026.
Quick Take: Are Interest Rates Going Down?
While many interest rates are going down in the long-term, there’s mixed short-term movement. The Federal Reserve has cut the federal funds rate twice, bringing it to a target range of 3.75% to 4%. However, mortgage rates have slightly increased week-over-week while remaining significantly lower than a year ago.
The future direction depends on inflation and labor market data, with predictions varying for how much further rates will fall. Here are some current key takeaways:
- The Federal Reserve cut its target for the federal funds rate by 0.25% in both September and October 2025.
- When looking at the annual picture, mortgage rates are down compared to a year ago, and the average 30-year fixed-rate mortgage is still below the 7% mark.
- Projections for the near future are mixed, with some anticipating a potential move toward 6% by the end of 2025, while others forecast rates remaining in the 6.3% to 6.5% range for the rest of the year.
1. Jumping To Buy Too Early (Even If You Can’t Afford It)
If you’ve been saving and planning to buy your first home for a long time, you might be getting excited that interest rates are dropping. However, you still need to be careful not to make a hasty decision and purchase a home you can’t afford.
Even if you have enough saved for the down payment and you get approved for a loan, you’ll still need to carefully consider the cost of the total monthly payment before deciding to move forward. As a general rule, it’s not a smart idea to spend more than 30% of your income on housing each month.
2. Waiting Until Interest Rates Drop Even More Next Year
Yes, you can certainly wait longer to see if mortgage rates will drop further.
At the same time, if rates continue to fall, more prospective buyers will likely enter the housing market. This will most certainly result in higher home prices due to increased demand for an already limited housing stock. So, waiting longer may not be the best financial move.
3. Assuming That Mortgage Interest Rates Will Match the Federal Funds Rate
A decrease in the federal funds rate will ultimately correlate to lower mortgage rates.
However, mortgage rates won’t necessarily drop further in the near term just because the federal funds rate drops. Many lenders tend to include predicted rate cuts on their current rate offers. So, a 0.25 to 0.50 basis point reduction may not lead to an equivalent decrease in mortgage rates right now.
Caitlyn Moorhead contributed to the reporting for this article.
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