- Average 30-year mortgage rates have been hovering in the mid-to-high 6% range in recent months.
- Mortgage rates are expected to trend down next year. But how much they fall depends on the economy.
- Homebuyers might consider buying now and refinancing later to avoid increased competition next year.
Good news for borrowers: The wait for lower rates may soon be over. Now that inflation has slowed and the Fed started cutting rates, mortgage rates are expected to drop next year.
The not-so-good news: Rates probably won't go back to the historic lows we saw in 2020 and 2021. And once rates fall, homebuyers will likely have other challenges to contend with, including increased competition and rising home prices.
Expert mortgage rate predictions for 2024 and 2025
Want to know where the experts see mortgage rates trending in 2024 and 2025? Here are forecasts from some of the top institutions and groups in the mortgage and housing industries.
A note about these predictions: Mortgage rates vary slightly depending on whose data you're looking at. Business Insider uses mortgage rate data from Zillow, but many of these forecasts base their predictions on Freddie Mac's Primary Mortgage Market Survey, which is typically a bit higher. In the last week of November, Freddie Mac's average 30-year rate was 6.81%.
- Fannie Mae: Fannie Mae's latest forecast predicts that 30-year mortgage rates will end 2024 around 6.60% and drop to 6.30% by the end of next year. This is a significant revision from its previous forecast, which saw rates dropping into the 5% range in 2025. Its forecast for 2026 has rates falling to 6.10%.
- Freddie Mac: In their November outlook, Freddie Mac researchers said they believe mortgage rates will remain elevated in the near term and "gradually decline" throughout 2025.
- The Mortgage Bankers Association: Similar to Fannie Mae, the MBA sees mortgage rates ending 2024 around 6.60% and continuing to trend down throughout 2025. The group thinks rates could end 2025 at 6.40% and tick down to 6.30% in 2026.
- The National Association of Realtors: NAR's quarterly outlook has 30-year mortgage rates ending 2024 at 6.1% and bottoming out around 5.8% toward the end of 2025. After that, we could see rates tick back up to 6.1% in 2026.
- Realtor.com: In its 2025 housing forecast, Realtor.com anticipates that mortgage rates will end this year at 6.70% and drop to 6.20% by the end of 2025.
- The National Association of Home Builders: In its latest housing and interest rate forecast, NAHB predicts that mortgage rates will average 6.69% in 2024 and fall to 6.12% in 2025. It also believes rates could ease further in 2026, decreasing to a yearly average of 5.71%.
So, it's possible we could see mortgage rates end the year near their current levels or slightly lower. But experts are generally in agreement that rates will drop next year.
Understanding mortgage rates and their impact on the housing market
Mortgage rates fluctuate from day to day and even hour to hour, and where mortgage rates are trending can have a major impact on homebuying demand.
When mortgage rates are low, homebuying demand typically goes up. Low rates boost buying power and make it easier for potential buyers to afford a home purchase. However, an increase in demand can put upward pressure on home prices, erasing some of that benefit.
High mortgage rates typically have the opposite effect on demand. Because getting a mortgage becomes more expensive, many buyers drop out of the market to wait for rates to go back down. This can help keep prices from rising too much, but that's not always the case.
As mortgage rates rose in 2022 and 2023, many would-be home sellers chose to stay in their homes rather than sell and have to give up their historically low mortgage rates. This phenomenon, deemed the "lock-in effect," constrained housing supply and pushed prices up, since there weren't enough homes on the market to meet buyers' needs.
Factors influencing mortgage rates
Mortgage rates are determined by a number of different economic influences, including investor demand for mortgage-backed securities, the current rate of inflation, Federal Reserve policy, and even geopolitical uncertainty.
In general, mortgage rates tend to go up when the U.S. economy is doing well or growing quickly, while slowing growth or a recession can push rates down.
Rates also vary by state, so where you live can determine how much you'll pay to get a mortgage. Your individual financial profile, including your credit score, down payment, and debt-to-income ratio, will help determine the exact rate you get as well.
The 10-year Treasury and mortgage rates
Mortgage rates tend to follow the 10-year Treasury yield, with mortgage rates trending a bit higher. You can generally tell where mortgage rates will go on a daily basis by looking at where the 10-year Treasury yield is going.
When the economy is strong, investors are less interested in investments with lower returns, so the 10-year Treasury yield and mortgage rates tend to go up during these times to make their returns more attractive. But when the economy experiences a downturn, investors turn to safer investments like the 10-year Treasury and mortgage-backed securities, pushing rates down.
Current mortgage rate trends and analysis
Why are mortgage rates so high?
Mortgage rates initially dropped to historic lows in 2020 and 2021 after the Fed cut the federal funds rate to near zero to avoid a pandemic-induced recession. Then, as the Fed quickly raised rates to combat record-high inflation, mortgage rates climbed.
Inflation has slowed significantly since it peaked in June 2022, when prices had risen 9.1% year over year, according to the Bureau of Labor Statistics. In October 2024, the consumer price index was up 2.6% year over year.
Now, the Fed has finally started lowering its benchmark rate for the first time in four years. Mortgage rates are down compared to where they were a year ago, and they're expected to fall further next year as the Fed continues lowering rates. But rates have increased over the last couple of months, and they may remain elevated through the end of the year.
What are today's mortgage rates?
In November, average 30-year mortgage rates were 6.56%, according to Zillow data. This is an increase from the previous month. Fortunately, rates have been a bit lower so far in December.
Future outlook for mortgage rates
Mortgage rate predictions 2025
Most major forecasts expect rates to fall in 2025. But how much will mortgage rates go down? It depends on the economy and how quickly the Fed opts to lower its benchmark rate. In the near term, we may not see rates move much.
Rates have been very sensitive to economic news, and recent data has been relatively strong, pushing rates up. If the economy remains strong and inflation takes longer to decelerate, mortgage rates may trend down more slowly. On the other hand, if it starts to look like the labor market is weakening or the Fed is gearing up for larger, faster cuts, we could see mortgage rates fall more substantially.
Will mortgage rates go down in 2025?
Mortgage rates are likely to go down in 2025 as long as inflation continues to slow.
When will mortgage rates go down to 3%?
It's possible that rates will one day go back down to 3%, though if current trends hold that's not likely to happen anytime soon.
Think about the reason rates went so low in the first place: In response to the COVID-19 pandemic, the Fed slashed rates and purchased a large number of mortgage-backed securities to stave off an economic crisis. This allowed mortgage rates to drop as low as they did, with 30-year mortgage rates reaching an all-time low of 2.65% in January 2021, according to Freddie Mac.
No one can predict exactly when another economy-altering event like the pandemic will occur, but barring something extreme, we likely won't see rates that low again for a while. Lawrence Yun, chief economist at the National Association of Realtors, even told CNBC last year that he doesn't think mortgage rates will reach the 3% range again in his lifetime.
Projected interest rates in 5 years
Mortgage rate forecasters typically don't project out very far because rates are impacted in large part by the economy, which is often unpredictable or volatile.
Based on current conditions, mortgage rates may continue to trend down for the next year or two before settling in at a more steady rate in the following years. How low rates will go depends on the economy.
It's possible in a few years we could see rates drop into the 5% range. But it's also possible a big drop could be the result of a larger economic downturn. Rates could also rise unexpectedly if, for example, inflation starts rising again.
Should I wait for mortgage rates to drop before buying a house?
Because mortgage rates are expected to drop further, some hopeful homebuyers have decided to wait for lower rates to start shopping for homes. But that's not necessarily the best strategy, as there are some advantages to buying right now.
At the moment, many borrowers have rates that are much lower than current rates. According to a Redfin analysis of Federal Housing Finance Agency data, 89% of homeowners had a mortgage rate below 6% in the third quarter of 2023. Many had rates that were even lower; 59.4% had a rate below 4%.
High rates have kept many of these homeowners from selling, since they don't want to give up their current rates. While this has severely limited inventory, the lack of additional buyers on the market has also kept prices somewhat moderate.
Afifa Saburi, capital markets analyst for Veterans United Home Loans, says that buying now and refinancing later is a good strategy for buyers who want to avoid competition and the higher home prices that will likely come with it.
"Would-be buyers that have the ability to buy can avoid a potentially competitive market by locking in a purchase now and taking advantage of a refinance in the future," says Saburi.
A mortgage refinance replaces your existing mortgage with a new mortgage, often with the goal of getting a lower rate or lower monthly payment. If you can afford to buy a house now, you could avoid a tough housing market next year and have the opportunity to lower your housing costs with a refinance once rates fall. Just be sure to shop around and get quotes from multiple mortgage refinance lenders to be sure you're getting the best rate.
When should I refinance?
If the mortgage rate you're paying is higher than the rates that are currently available, it may be worth it to refinance your mortgage. But you should weigh both the benefits and drawbacks of doing so before starting the process.
Rates are still relatively high, and they're expected to go down next year. Because it costs money to refinance, it could be worth waiting until rates have dropped further so you can take advantage of even larger savings.
"If you're already in the home and there wasn't a dire need, then the odds are in your favor to wait this out a little bit, see what's going to happen, maybe over the next quarter and what the trend looks like heading into 2025," says Phil Crescenzo, vice president of the southeast division atNation One Mortgage Corporation.
You might also not stand to benefit as much right now if rates are only marginally lower than what you're paying.
Another factor to think about is how long it will take you to break even on your refinance. For example, say you're able to save $200 on your monthly payment by refinancing. But the refinance comes with $5,000 in closing costs. It would take you 25 months, or a little over two years (5,000 ÷ 200 = 25) to break even. After that, you actually start to benefit from the refinance. Will you be in the home long enough for it to be worth it?
How to get a lower mortgage rate: Top strategies
Clean up your finances
Your credit score and debt-to-income ratio can play a big part in what rate you end up with. Higher scores and lower DTIs are less risky for lenders, so they reward these borrowers with lower rates.
To improve your credit score, make sure you're consistently making on-time payments on any debts you owe. You can also raise your score by paying down a credit card or increasing your credit limit to lower your utilization.
Your DTI shows how much you spend on debt relative to your income. To lower it, you can either reduce your debts or increase your income.
Make a larger down payment
Another factor in what rate you end up with is your down payment. The minimum down payment for a conventional mortgage is 3%. But if you can put down more, you'll likely get a better rate.
Shop around for the most affordable lender
One of the best things buyers can do to get a lower mortgage rate is to get quotes from a few different mortgage lenders.
Not every lender offers the same range of rates; some are more affordable than average, while others are more expensive. By shopping around, you can ensure you get the best rate available.
Buy down your rate
You can also pay for a lower rate. With mortgage points or discount points, you'll pay cash at closing in exchange for a slightly lower interest rate. This could be worth it if your goal is to reduce how much you're spending each month, but be sure to also consider your overall budget and how much you can afford to pay at closing.
Another way to lower your rate is with a temporary buydown. With a buydown, your rate will be lower for a period of time. For example, with a 2-1 buydown, your rate will be lowered by two percentage points for the first year you have the loan and one percentage point during the second year. Then it returns to normal. These are often paid for by the seller or home builder.
Will mortgage rates go down FAQs
Will mortgage rates go down in 2025?
Mortgage rates are predicted to go down in 2025, but this hinges on inflation continuing to ease and the Fed lowering rates.
What causes mortgage rates to go down?
Mortgage rates may go down in response to lower inflation, slowing economic growth, or easing Fed policy.
What will the mortgage rates be in 2025?
Several major forecasts predict that mortgage rates will drop into the low 6% range in 2025.
What is the mortgage rate forecast for the next 5 years?
It's hard to accurately predict where mortgage rates might go in the next five years. Right now, it looks like mortgage rates will ease over the next two years and remain relatively steady in the years that follow.
What should I do if I'm planning to buy a house but am concerned about fluctuating mortgage rates?
If you're worried about fluctuating rates, you can talk with your loan officer about where they see rates trending in the near term and whether it makes sense to lock in your mortgage rate.
Are adjustable-rate mortgages (ARMs) a good choice when rates are fluctuating?
An ARM can be a good choice when rates are high, since you may be able to get a lower initial rate. But unlike with fixed-rate mortgages, your ARM's rate will change periodically after a number of years, potentially increasing your mortgage payment.