What Lower Interest Rates Could Mean

Interest rates are higher than they've been in decades after a run of rate hikes by the Federal Reserve Board (the Fed) to calm inflation.1 But consumers received some welcome news at the Fed's annual economic conference in August 2024: The Fed suggested it will start lowering2 the benchmark federal funds rate, possibly as early as mid-September 2024, due to a combination of decreasing inflation and increasing unemployment.

Keep in mind that this is just a prediction — there's no telling what the future holds.

Presuming it does happen, let's break down what lower interest rates could mean for you, whether you're a homeowner, a prospective buyer, or a saver.

Homeowners

Changes to the federal funds rate don't directly impact consumers. However, most banks that make loans to consumers actually set their rates off the Wall Street Journal (WSJ) prime rate — the rate offered to their most creditworthy customers — a few percentage points above the federal funds rate.3 (Note: the WSJ prime rate typically moves in lockstep with the Fed’s announced rate changes, so variable-rate loans/lines will usually update in their next billing cycle after a rate move.) In other words, changes to the federal funds rate typically do impact the cost of borrowing money, including mortgages, home equity loans and home equity lines of credit (HELOC). 

Is It Time to Refinance?

If you recently bought a house, you may want to consider refinancing if interest rates fall. Lower interest rates can translate into reduced monthly payments and interest savings over the life of your mortgage. It's worth consulting with a mortgage officer to see how much you could save by refinancing.

Considering a HELOC or Home Equity Loan?

Interest rates on HELOCs and home equity loans will likely decrease along with the federal funds rate. If you've been contemplating a loan for renovations or other purposes, you might want to hold out to see whether interest rates drop in the coming year.

Lower interest rates mean lower borrowing costs, making it a more financially viable option.

Prospective Home Buyers

The past few years have been tough for many would-be home buyers. While higher interest rates usually mean cooling the housing market, low housing stock kept home prices high. A combination of high interest rates and high median home prices kept homeownership out of reach for many potential buyers.4

If you're in the market for a new home, 2024 could be a better year to purchase one. Lower interest rates could help you qualify for a larger loan or make your monthly payment more affordable. If interest rates come down this year, reconnect with your mortgage officer for help figuring out how much home you can afford to buy.

Your mortgage officer can estimate your new monthly payment at different house price points.

Prospective Car Buyers

If you're in the market for a new (or new to you) car and need an auto loan to make the purchase, lower rates could help you qualify for a more expensive vehicle or get the same car for a lower monthly payment. It's a good idea to talk to your bank to understand how the new rates could affect your loan terms.

Savers

For savers, lower interest rates aren't great news. If interest rates fall, the rates on savings, money market accounts and Certificates of Deposit (CDs) will likely decrease.

Fortunately, if you're considering opening a CD, you can lock in today's rates before interest rates drop.

Understanding Fixed vs. Variable Rates

Understanding the difference between fixed- and variable-rate loans in this context is crucial. The interest rate on a fixed-rate loan remains the same throughout the loan term and is unaffected by market fluctuations. On the other hand, the interest rate on variable-rate loans changes periodically. (The frequency with which your rate changes is spelled out in your loan terms.)

In short, when interest rates rise or fall, the rate on a variable-rate loan will rise or fall, too, whenever the interest rate is scheduled to reset.

For example, if you have a fixed-rate auto loan, changes in the federal funds rate won't impact you. However, if you have a variable rate HELOC, your interest rate and monthly payments can rise or fall as the interest rate fluctuates.

But that doesn't mean those with fixed-rate mortgages with a high interest rate are stuck with it. If rates fall enough, it may make sense to refinance your mortgage. This handy mortgage refinancing calculator will help you compare your current mortgage costs to those if you refinance. It also allows you to factor in the cost of refinancing, so you'll know how long it will take to break even after paying those costs.

If you have any questions about how interest rate changes may impact your finances, consult a Synovus financial professional or Call us at 1-888-SYNOVUS (1-888-796-6887).