With 2024 winding down, mortgage rate forecasts for 2025 are rolling in, showing some moderation ahead.
Generally, this is good news for the housing market, especially for first-time homebuyers who’ve been eagerly waiting in the wings for the right time to jump into the market. But as economists and industry watchers will agree, pinpointing where mortgage rates will go and how they’ll react to market shifts is an uncertain gamble.
From Federal Reserve rate decisions and the U.S. presidential election outcome to housing supply and demand, here’s what experts say will influence the mortgage rate forecast for 2025.
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- America’s most popular mortgage term is the 30-year home loan.
- Planning to buy a home that exceeds the FHFA’s conforming loan limits? A jumbo mortgage is probably your best option.
- Some borrowers prefer 15-year mortgages to save on interest.
- If your credit has some dings, an FHA loan may be the way to go.
- Military members and veterans may be able to buy a home with no down payment by using a VA loan.
- If you’re buying in an eligible rural area, and fit the income criteria, a USDA loan could make homeownership possible.
- Those seeking a lower rate or different loan term should take a look at refi rates.
- While most borrowers prefer fixed-rate loans, adjustable-rate mortgages can be a good choice in specific situations.
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Mortgage rate predictions for 2025
Several housing industry trade groups and agencies are forecasting lower interest rates in 2025, but precisely how low will they go? Here are the latest mortgage rate predictions for 2025:
- The Mortgage Bankers Association (MBA) forecasted the average 30-year fixed mortgage rate will decline to about 6.2% in the first quarter of 2025 and stay around that mark before falling to 5.9% by the end of the year, according to projections released in late October at the trade group’s annual meeting.
- Fannie Mae predicted that mortgage rates will hover around 5.9% in the first quarter and slowly decline somewhat over the year, ending the year at about 5.6%, according to its October forecast.
- ICE Mortgage Technology forecasted the average 30-year fixed rate to reach near 6.6% by March 2025. That’s more than 70 basis points higher than it predicted in September 2024.
- The National Association of Home Builders (NAHB) called for mortgage interest rates to fall below 6% by the second quarter of 2025, according to a revised forecast in late October. Previously, the trade group predicted this sub-6% rate drop wouldn’t happen until Q4 2025.
Making mortgage rate predictions too far into the future comes with some risk. There are so many seen and unseen factors impacting mortgage rates at a given moment in time that it’s virtually impossible to quantify them all—let alone predict where they’ll be in 18 months.
This isn’t to say that all mortgage rate predictions should be ignored, but rather, that they should be taken with a grain of salt. What thousands of talented economists, analysts and bankers have given us is not a promise—but an extremely well-educated guess—of where rates will go in 2025.
That’s an important distinction to make when you’re considering when to buy a home or refinance, because assuming that rates will follow their predicted path is a risk all by itself.
Mortgage rate insights from leading economists
MBA Chief Economist Mike Fratantoni indicated at the group’s meeting that the mortgage market has already baked future Fed rate cuts into pricing, keeping mortgage rates “within a narrow range around 6% for the foreseeable future.”
“We are bullish about the spring 2025 housing market,” Fratantoni said. “Mortgage rates at this level should support homebuyer demand and gradually reduce the lock-in effect, thereby increasing the inventory of existing homes and supporting higher purchase origination volume in 2025.”
Joel Kan, MBA’s vice president, deputy chief economist, stressed that younger Americans will help support housing demand as they enter or are in their prime homeownership years.
But Kan cautioned that affordability pressures from rising home prices and still-elevated mortgage rates, along with increases in property taxes and homeowners insurance premiums, are continuing to push median purchase mortgage payments ever higher.
Meanwhile, mortgage rates might play a key role in shaking loose the housing inventory gridlock many markets are experiencing, and will be “absolutely key for next year,” said Andy Walden, ICE Vice President of Research and Analysis.
“It’s moving in the right direction,” Walden told Fortune Recommends at the MBA annual meeting. “The big question I think on a lot of people’s minds is when do sellers start to sell? When does that rate lock log jam that we’ve had in the market start to break free?”
In September, the deficit of sellers who were willing to list their homes on the market versus the levels in a traditional market fell to 12%, down from 20% to 25% previously, Walden said. It begs the question: Was it a one-time blip? Or did mortgage rates falling to 6% trigger more sellers to finally put their homes on the market?
Projected interest rates in 5 years
While no agency provides mortgage rate projections this far out, the MBA published a five-year forecast of average 30-year fixed mortgage rates from 2023 through 2027:
- 2023: 7.3%
- 2024: 6.3%
- 2025: 5.9%
- 2026: 5.9%
- 2027: 6.0%
Will mortgage rates go down in 2025?
The short answer is, yes, most likely. Mortgage rates are expected to fall slightly in 2025 based on current projections. This should offer some relief to homebuyers and current homeowners who might have purchased when rates were higher and could benefit from refinancing into a new loan with a lower rate.
However, there are several unknowns that could influence how mortgage rates behave in the new year, turning the current forecasts upside down. These include home prices, housing inventory, the pace of new construction, buyer demand, inflation and economic performance. Add in uncertainty about what the results of the U.S. presidential election will mean for the housing market, and it’s a toss-up as to how rates for mortgages and other financing might respond in 2025 and beyond.
Factors influencing mortgage rates in 2025
According to Freddie Mac, there are numerous economic trends that all spell falling mortgage rates in 2025. Here are some of the most notable drivers that will tip mortgage rates lower in the year ahead.
Housing market conditions
While home inventory still remains low (1.32 million units versus the pre-pandemic average of 1.8 million), that still represents a 23% year-over-year increase from 2023 levels. And as supply skyrocketed, buyer demand fell 5.4%.
The role of inflation
When inflation ramps up and the cost of everything soars, so, too, do home prices and mortgage rates. Lenders charge higher rates to offset their increased costs of doing business in periods of high inflation. Likewise, when inflation moves lower, mortgage rates tend to come down, too.
Impact of employment data
According to the Bureau of Labor Statistics (BLS) data, unemployment reached 4.1% in October—up from 3.8% a year ago. Historically, higher unemployment leads to lower housing demand, which in turn forces lenders to consider lowering rates, and vice versa.
Fed rate changes
Since the Federal Reserve has neared its goal of 2% inflation (it was 2.6% in June 2024), it may continue lowering interest rates to encourage borrowing and prevent another recession. Although Fed rate changes don’t directly impact mortgage rates, they do tend to track in the same direction. However, it’s worth noting that since September’s big Fed rate cut, mortgage rates crept back up near 7% as of early November after briefly flirting with the 6% mark in September.
10-year Treasury yield
When making an educated guess at where mortgage rates might be down the road, it’s wise to consider the 10-year Treasury yield. In fact, these Treasury notes have been shown by Freddie Mac data to move in concert with mortgage rates roughly 85% of the time, according to lender Price Mortgage.
So where does this benchmark stand? Treasury yields have been moving up, according to an Oct. 22, 2024 analysis by LPL Financial Chief Fixed Income Strategist Lawrence Gillum—with the yield on the 10-year note currently above 4%. That’s good news for investors holding those bonds, but not great for prospective homebuyers hoping for lower rates soon.
While mortgage rates were trending consistently downward prior to the Federal Reserve’s September 2024 meeting in anticipation of a cut to the federal funds rate (which the Fed delivered), rates have actually climbed since the meeting. Gillum’s analysis notes that the market has essentially already priced in big rate cuts, meaning mortgage rates aren’t likely to dip in the immediate future.
Key takeaways
While these factors are major contributors to rising or falling mortgage rates, the federal interest rate has an indirect but notable influence on where rates might go next.
That’s why bankers, lenders, analysts, economists and well-educated home-buyers all tend to lean in and listen carefully when Fed Chair Jerome Powell speaks. Any indication whether the Fed will raise or lower interest rates at the next Federal Open Market Committee (FOMC) meeting is powerful intel about borrowing costs for lenders, which they pass on to consumers in mortgage rate pricing.
So, what is Powell saying these days?
Is the Fed likely to cut or hike rates, or hold steady?
In August 2024, Fed Chair Jerome Powell told a group of bankers, “The upside risks to inflation have diminished” and, “The time has come for policy to adjust.”
NPR reports that his remarks were met with raucous cheers.
September Fed rate cut
When the much-anticipated Sept. 17-18 meeting rolled around, the FOMC announced a whopping cut of 0.50%, lowering the federal funds rate to 4.75% to 5%. And as mentioned above, 89 out of 101 economists surveyed expected the Fed might lower rates by another 0.25% or even 0.50% by year’s end.
November Fed rate cut
The FOMC took more conservative action at its Nov. 6-7 meeting than it had in September.
In contrast with September’s surprisingly large reduction of a half percentage point, in November the central bank decreased the federal funds rate by just a quarter of a percentage point (0.25%). It now stands at 4.50% to 4.75%. The next FOMC, which is the last of the year, is scheduled for Dec. 17-18.
Possibilities for 2025
But what about in 2025? Will the Fed keep cutting rates, hike them back up or hold steady?
According to a 2024 Reuters survey, the median forecast among 30 economists was that the Fed would continue cutting rates once per quarter in 2025 until the federal funds rate is in the 3.75% – 4.00% range. This is a pretty steep drop from where it sat as of early September 2024 (5.25% – 5.50%) and could lead to even lower mortgage rates than the ~5.9% predicted above.
Now that we’ve established where mortgage rates are predicted to be in 2025 (and why) let’s zoom in from the macro to the micro.
How does this affect you?
Should you wait until 2025 to buy a house?
Even though mortgage rate projections should always be taken with a grain of salt, there’s a healthy amount of evidence to suggest that rates could fall by 0.5% or more by the end of 2025.
If you’re among the millions of aspiring U.S. homeowners, consider that a 0.5% lower rate could reduce your monthly payment on a $350,000 mortgage by something like $114, based on an example scenario we ran comparing a loan with 6.5% rate vs. a 6% rate. That adds up to a $1,368 difference in interest paid per year, or $41,040 over the life of a 30-year loan.
To help you decide, let’s run through some of the good (and bad) reasons to wait until 2025 to buy a home.
Good reasons to wait:
- You need more time to save. If you’re not financially ready to buy a home just yet, it’s better to wait than to stretch your finances too thin. If you force it too early, you run the risk of becoming “house poor.”
- You need to improve your credit score. Keep in mind that your credit score will generally have a far greater impact on your mortgage rate than market conditions.
- You’re not seeing homes that interest you. If the properties within your budget don’t excite you, there’s little reason to rush the process and settle.
Bad reasons to wait:
- “Mortgage rates are falling.” If you’re otherwise 100% ready to buy a home, a predicted decline in mortgage rates isn’t a great reason to pull the plug since a) it may not happen and b) waiting to buy means paying rent longer. Also, once you’re in a home you love, you can refinance your loan later as we’ll address below.
- “Inventory will be better.” On the contrary, with around 71% of aspiring homeowners waiting for interest rates to drop to buy a home, it’s entirely possible we could see a spike in demand that gobbles up the rising (but still limited) supply once rates do head downward.
- “Houses will be cheaper.” In a similar vein, falling rates may lead to a rise in buyer demand, which will drive home prices further up.
Should you refinance your mortgage in 2025?
Contrary to buying, the “when should I refinance?” conversation is a little more straightforward.
As a general rule of thumb, it’s best to consider refinancing when you can secure a rate that’s at least 1% lower than your current rate. That way, the cash savings will generally make up for the time, effort and closing costs of refinancing.
Let’s say you purchased a home with a rate of 7.835% on your loan last year when your FICO score was 690. In the 11 months since, your score has risen to 730 and mortgage rates have fallen to 6.5% for well-qualified borrowers. Now might be the time to call your lender and ask about your refinancing options, or even shop around with other lenders.
If you’re not quite at that 1% threshold, it might be worth waiting to see what rates 2025 will bring. In the meantime, you can set yourself up for success by researching lenders and improving your credit score.
Mortgage interest rates in 2024
For most of 2024, 30-year mortgage rates hovered around 7%.
In May, Fannie Mae’s Home Price Expectations Survey (HPES) originally predicted that rates would fall to 6.6% by year’s end. However, that was before the Fed’s big September rate cut.
Anticipating the Fed’s move, the mortgage market already priced in lower interest rates ahead of the Fed’s meeting, with the average 30-year fixed rate hitting 6.08% in late September, according to Freddie Mac. However, Fed rates and mortgage rates don’t always run parallel to each other, and mortgage rates have actually risen since September.
In fact, mortgage rates reached 6.72% by the end of October, according to Freddie Mac. The MBA predicts that mortgage rates will end the year at around 6%, bringing a tumultuous year in housing to a close.
Current mortgage rate trends
Here’s how the average interest rates have trended in recent months for a variety of home loan types, according to mortgage data and technology company Optimal Blue:
Note that due to the timing of the data reporting, the most current rate available for today is the one shown on the chart for the previous business day’s date.
Historical mortgage rates chart
Here’s a look at how average rates have tracked for 30-year conforming mortgages dating back to the 1970s, as presented by the Federal Reserve Bank of St. Louis (FRED):
Frequently asked questions
Will mortgage rates go down to 3% again?
No, not unless there’s an event such as another global pandemic or economic crisis forcing the Fed to lower rates to 0.00% – 0.25% again. In January 2024, the National Association of REALTOR (NAR)’s Chief Economist Dr. Lawrence Yun famously stated that he doesn’t expect rates to fall below 3% again in his lifetime.
What might mortgage rates look like over the next five years?
Due to countless seen and unseen factors, mortgage rate predictions going out farther than 18 months (and from reliable sources) are generally pretty rare.
Zooming out to the housing market as a whole, in January 2024 a group of economists with Bank of America told CNN that they don’t expect the housing market to get “unstuck” until 2026 or later. This is largely due to the “lock-in effect,” where many homeowners are unmotivated to sell and lose their 3% interest rate—thus limiting overall supply.
When should I lock in my mortgage rate?
Mortgage rate locks are generally used when rates are trending higher. If you lock in a rate too early and rates begin to fall, you may have to withdraw your current mortgage application and start over. In short: ask your lender.
What’s the best way to shop around for a new mortgage rate?
A great way to shop for mortgages is to ask for lender recommendations—from friends, family, your REALTOR, and so on— then get prequalified and compare rates. Consider also that small, specialized lenders tend to work faster than general lenders at big banks. Some consumers may also want to ask lenders whether they sell their mortgages or keep them for the life of the loan. To learn more, check out our guide to shopping around and finding the right mortgage.
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About the contributors
Personal Finance Expert
Chris Butsch is an expert on the subjects of credit cards and mortgages. Chris is a two-time author who has made it his mission to help people build better lives through financial literacy and positive psychology. His writing has been featured in HuffPost, ConsumerAffairs, Money Under 30, and Investor Junkie.
Personal Finance Expert
Deborah Kearns is a freelance contributor to Fortune Recommends and an award-winning personal finance journalist and housing expert. You can find her bylines in The New York Times, MarketWatch, CNN, NerdWallet, The Associated Press and many other publications. Deborah lives outside of Denver, Colorado, with her husband, two kids and their rambunctious rescue pup.
Staff Editor, Mortgage & Credit Cards
Glen Luke Flanagan is a staff editor at Fortune Recommends who focuses on mortgage and credit card content. His prior role was as a senior writer at LendingTree focused on credit card rewards, credit scores, and related topics. Before that, he wrote for the Charleston Gazette-Mail. Glen holds a master’s degree in technical communication from East Carolina University and a bachelor’s degree in journalism from Radford University.
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