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Key Points
• Mortgage rates are influenced by inflation, unemployment rates, and the Federal Reserve’s monetary policies.
• Higher mortgage rates can make homeownership less affordable, increasing monthly payments.
• Homebuyers should consider their financial situation and housing needs when deciding whether to wait for lower rates or proceed with a purchase at current rates.
• Montana offers various mortgage types, including fixed-rate mortgages, adjustable-rate mortgages (ARMs), FHA loans, VA loans, USDA loans, and jumbo loans.
Introduction to Mortgage Rates
Securing a home loan is a crucial step in the homebuying process, and understanding mortgage rates is essential for making informed financial decisions. A diverse range of mortgage options are available in Montana. By comparing lenders and their mortgage rates, homebuyers can potentially save thousands of dollars over the life of their loan.
Mortgage interest rates are calculated using a complex combination of factors, which fall into two categories: market conditions and the borrower’s financial status. Economic factors include the Federal Reserve’s interest rates, inflation, and unemployment rates, while borrower-specific factors include credit score, down payment, income and assets, and the type of mortgage loan.
Where Mortgage Rates Come From
The Federal Reserve, familiarly known as “the Fed,” sets the short-term interest rates that banks use. Although home loan rates aren’t directly tied to Fed rates, they tend to follow the same economic trends. When the Fed cuts rates, chances are mortgage rates will drop too.
How Interest Rates Affect Home Affordability
Mortgage rates have a bigger impact on home affordability than people may realize. Even small interest rate changes can put homeownership out of reach for middle-income Americans. For instance, a 1% increase in interest rate on a $300,000 loan can add almost $200 to the monthly mortgage payment, a significant amount in a family budget.
Should Homebuyers Wait for Interest Rates to Drop?
If you’re buying your first home, you may wonder if you should act now or wait for interest rates to come down even more. Conventional wisdom says that waiting for rates to drop may mean missing out on the opportunity to buy a home at an affordable price, as home prices tend to appreciate over time. Even if rates do drop significantly, homeowners can always refinance their mortgage to take advantage of lower rates.
Montana Mortgage Rate Trends
Homebuyers were pleased when the Fed lowered its benchmark rate by 0.50% in September 2024. The move came after years of rate hikes intended to curtail inflation. Economists anticipate more rate cuts to come, lasting into 2025.
Historical Interest Rates in Montana
In Montana, mortgage rates have ranged from a high of 8.10% in 2000 to a low of 3.58% in 2012, and even lower in early 2021. Mortgage rates rose in recent years, but still remained below historical highs. In fact, current rates are around the 50-year average.
| Year | Montana Rate | U.S. Rate |
|---|---|---|
| 2000 | 8.10 | 8.14 |
| 2001 | 6.92 | 7.03 |
| 2002 | 6.59 | 6.62 |
| 2003 | 5.74 | 5.83 |
| 2004 | 5.64 | 5.95 |
| 2005 | 5.76 | 6.00 |
| 2006 | 6.50 | 6.60 |
| 2007 | 6.40 | 6.44 |
| 2008 | 6.01 | 6.09 |
| 2009 | 4.97 | 5.06 |
| 2010 | 4.79 | 4.84 |
| 2011 | 4.55 | 4.66 |
| 2012 | 3.58 | 3.74 |
| 2013 | 3.85 | 3.92 |
| 2014 | 4.17 | 4.24 |
| 2015 | 3.88 | 3.91 |
| 2016 | 3.73 | 3.72 |
| 2017 | 4.05 | 4.03 |
| 2018 | 4.66 | 4.57 |
Historical U.S. Mortgage Rates
To provide some context, the average 30-year fixed mortgage rate in the United States has ranged from under 3% to 18% since 1971. The highest rates were seen in the early 1980s, while the lowest rates were recorded in early 2021.
Factors Affecting Mortgage Rates in Montana
Many elements influence mortgage rates in Montana and nationwide. Some of these are economic, while others are within the homebuyer’s control.
Economic Factors
• The Fed. The federal funds rate serves as a benchmark for other interest rates, including mortgage rates. When the Fed lowers its rate, mortgage rates tend to follow.
• Inflation. When inflation rises, the purchasing power of money decreases, making it more expensive for lenders to lend money. As a result, they may increase interest rates to compensate.
• Unemployment rate. Lower unemployment can result in higher mortgage rates. A low unemployment rate indicates a strong economy, which typically leads to increased demand for housing. This increased demand puts upward pressure on home prices and, not surprisingly, mortgage interest rates.
Consumer Factors
• Credit score. A higher credit score generally results in a lower mortgage interest rate. Lenders view borrowers with high credit scores as less risky, making them more likely to offer favorable rates.
• Down payment. Increasing the down payment can reduce the mortgage interest rate. A larger down payment reduces the loan amount, which lowers the lender’s risk and may result in a lower interest rate.
• Income and assets. A steady income is important to lenders, who will check your employment history as well as your salary. Assets like investments and emergency savings also reassure lenders that you could still pay your mortgage in the case of a job loss or other financial setback.
• Type of mortgage loan. Certain types of mortgages tend to have lower rates. For instance, adjustable rate mortgages (ARMs) typically offer lower initial rates than fixed-rate mortgages. Some government-backed loans, like VA mortgages, can also have lower rates. And a shorter loan term usually comes with a lower rate than a longer term.
Types of Mortgages Available in Montana
A SoFi survey found that understanding mortgage options is one of the trickiest parts of the home buying process, with 38% of would-be owners admitting they were confused.
Various mortgage types — including fixed-rate, adjustable-rate, FHA, VA, and USDA loans — are available to meet the needs of different homebuyers. Conventional loans can be fixed-rate or adjustable, and conforming (for most median-priced homes) or jumbo.
Fixed Rate Mortgage
Fixed-rate mortgages maintain the same interest rate throughout the life of the loan, ensuring that the principal and interest payments remain constant. Fixed-rate mortgages are available in terms of 10, 15, 20, or 30 years.
Adjustable Rate Mortgage (ARM)
Adjustable-rate mortgages (ARMs) initially offer a lower rate than fixed-rate loans, which can be beneficial if planning to sell before the fixed period ends. However, after the initial fixed-rate period, the interest rate adjusts periodically based on market conditions — usually after 5, 7, or 10 years.
An ARM is labeled with two numbers, such as a 5/1 ARM. The first is the number of the years in the introductory period (5, 7, and 10 year ARMS are the most common). The second is the period when the interest rate will reset. So a 5/1 ARM has a 5-year introductory period, followed by one adjustment per year. A 7/6 ARM has a 7-year introductory period, followed by interest rate adjustments every 6 months.
FHA Loans
FHA loans typically have more lenient eligibility requirements than conventional loans. These loans are insured by the Federal Housing Administration, which helps reduce the risk to lenders and may result in lower interest rates. Keep in mind, however, that mortgage insurance is required for the life of the loan.
VA Loans
Backed by the Department of Veteran Affairs, VA loans are available to veterans, active-duty military members, and some Reserve and National Guard members. One of the primary benefits of VA loans is that they do not require a down payment. Borrowers apply to private lenders, after obtaining a certificate of eligibility (COE) from the VA.
USDA Loans
USDA loans are designed for low-income borrowers looking to purchase a home in a rural area. These loans are backed by the U.S. Department of Agriculture (USDA) and may offer lower interest rates compared to conventional loans. These loans do require a 1% upfront fee and a 0.35% annual fee, based on the remaining principal.
Jumbo Loans
Jumbo loans are conventional mortgage loans that exceed the conforming loan limit set by the Federal Housing Finance Agency (FHFA). In Montana, the conforming loan limit for a single-family home is $726,000. Jumbo loans typically have higher interest rates than conforming loans due to the increased risk associated with lending above the conforming limit.
Popular Places to Get a Mortgage in Montana
Securing a mortgage often depends on choosing the right location, where home prices are affordable and mortgage terms are favorable. One way home buyers search for affordable areas is by looking at the local cost of living (COL).
The Cost of Living Index (COLI) ranks all 50 states against the overall average cost of living in the U.S. The state of Montana ranks 23 in affordability — right in the middle. Here are so
Least Expensive Locations
• Glendive: COLI 79.7 out of 100
• Miles City: COLI 81.5
• Havre: COLI 81.7
Most Expensive Locations
• Bozeman: COLI 125.7
• Missoula: COLI 112.8
• Kalispell: COLI 115.7
Tips for Securing a Competitive Mortgage Rate in Montana
A competitive mortgage rate is crucial for saving money over the life of a loan. Even half a percentage point can translate to tens thousands of dollars. Here are some tips for securing a competitive mortgage rate in Montana:
Compare Interest Rates and Fees
Take the time to compare interest rates and fees from multiple lenders. Be sure to ask about any upfront costs or closing fees associated with the loan. Online mortgage comparison tools can make it easier to compare rates from different lenders.
Get Preapproved
Getting preapproved for a mortgage strengthens your position as a buyer and allows you to move quickly when you find the right property. Preapproval also gives you a better idea of how much you can afford to borrow, which can help you narrow down your home search. If time is of the essence, just keep in mind that the mortgage preapproval process can take 10 days or more.
Consider a Shorter Loan term
Shorter loan terms typically come with lower interest rates than longer terms. If you can afford the higher monthly payments, a shorter loan term can save you money in interest over the life of the loan.
Improve Your Credit Score
A higher credit score — say, 740 or above — can lead to a lower mortgage interest rate. Take steps to improve your credit score, such as paying bills on time, reducing debt, and disputing any errors on your credit report.
Make a Larger Down Payment
Increasing your down payment can reduce your mortgage interest rate. A larger down payment reduces the loan amount, which lowers the lender’s risk and may result in a lower interest rate. In 2024, borrowers’ median down payment is 15%. With a down payment of 20% or more, though, you’ll also save money by avoiding private mortgage insurance.
Montana Mortgage Resources
Montana offers various resources and programs to assist homebuyers, particularly first-time buyers and those with limited financial resources. Remember that to qualify as a first-time home buyer in most areas of Montana, you must not have owned a primary residence within the last three years. These resources are worth checking out:
• Montana First-Time Homebuyer Tax Credit. This tax credit provides up to $2,000 for first-time homebuyers who purchase a home in Montana.
• Montana Housing Assistance Program. This program offers down payment and closing cost assistance to eligible first-time homebuyers.
• Montana Homebuyer Down Payment Assistance Program. This down payment assistance program is for eligible homebuyers who meet certain income and credit requirements.
Recommended: Montana First-Time Home Buying Assistance Programs & Grants
Tools & Calculators
SoFi provides online tools and calculators to help homebuyers estimate their monthly mortgage payments, resources to determine their eligibility for assistance programs and compare different loan options. These resources can empower homebuyers to make informed decisions throughout the homebuying process.
Run the numbers on your home loan.
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Mortgage calculator
Punch in your home loan amount and a new interest rate, and we’ll estimate your payoff date.
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Down payment calculator
Enter a few details about your home loan and we’ll provide your monthly mortgage payment.
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Home affordability calculator
Provide us with a few details and see how much you can afford to spend on a home purchase.
Using the free calculators is for informational purposes only, does not constitute an offer to receive a loan, and will not solicit a loan offer. Any payments shown depend on the accuracy of the information provided.
Refinancing Options in Montana
A mortgage refinance can be a smart way to lower your interest rate, reduce your monthly payments, or cash out some of your home equity. Here are a few refinancing options available in Montana:
FHA Streamline Refinance
The FHA Streamline Refinance allows FHA-insured homeowners to refinance into current mortgage rates with minimal hassle. This type of refinance does not require a new appraisal or credit check, making it a quick and easy way to lower your interest rate.
VA Streamline Refinance
This interest-rate reduction refinance loan (IRRRL) can reduce the monthly payments on VA loans by adjusting the APR. IRRRLs do not require a new appraisal or credit check, making them a convenient option for VA loan holders looking to lower their interest rate.
Cash-Out Refinance
With a cash-out refi, you take out a new mortgage for a larger amount than what you have left on your current mortgage and receive the excess as cash. You can use the cash for remodeling, debt consolidation, or paying for college costs.
Closing Costs, Taxes, and Fees in Montana
Buyers in Montana can expect to pay between 2%-6% of the home’s purchase price in closing costs. Closing costs include a variety of fees, such as the loan origination fee, appraisal fee, title insurance, and recording fees. These costs vary depending on the lender, the loan amount, and the property location.
The Takeaway
Montana’s mortgage landscape offers a range of options for homebuyers. By staying informed about current mortgage rates, exploring assistance programs, and carefully considering refinancing options, individuals can make strategic decisions that align with their financial goals and achieve successful homeownership in Montana.
Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.FAQ
Will mortgage rates drop in Montana?
On the heels of the Fed’s 0.50% rate cut, mortgage rates are expected to drop. Economics are anticipating more rate cuts to come, which will further lower mortgage rates into 2025. Beyond that, it is difficult to predict long-term mortgage rates with certainty.
Will mortgage rates ever go back to normal?
Current mortgage rates are close to the historical average, which makes them “normal.” Even after anticipated rate cuts, it’s unlikely we’ll see the sub-3.00% rates of 2021 again anytime soon.
Will Montana home prices ever drop?
Home prices in Montana are influenced by a variety of factors, including supply and demand, economic conditions, and population growth. It is difficult to predict whether home prices will drop in the future.
Is it a good time to buy a house in Montana?
It’s probably as good a year to buy as any. Interest rate cuts are likely to spur more homeowners to put their homes on the market, increasing inventory. On the flip side, more homebuyers will increase the competition for available homes. The real test is whether you are ready, financially and otherwise, to make a move.
How to lock in a mortgage rate?
You can lock in a mortgage rate by obtaining a rate lock from a lender. A rate lock guarantees that the interest rate will not change for a specified period of time, up to 90 days. There may be a fee associated with locking in a mortgage rate. Obviously, rate locks are in less demand while rates are dropping.
How do mortgage interest rates work?
Mortgage interest rates are determined by a number of factors, including the prevailing market interest rates, the borrower’s credit score, the loan amount, and the loan term. The interest rate is expressed as a percentage and is added to the principal amount of the loan to calculate the total amount of interest paid over the life of the loan.
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*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.
Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article. Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
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More home loan resources.
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First-Time Homebuyer Guide
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First-Time Homebuyer Programs and Loans
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Mortgage Preapproval Process