Elevated mortgage rates have made it difficult for buyers to move forward with home purchases. That's because on top of those higher rates, home prices are also up on a national scale.
But there's a good chance that mortgages will be less expensive to sign in 2025. The question is, how low will they go?
Downward movement is expected
As of this writing, the average rate on a 30-year mortgage is 6.47%. That's actually a notable drop from recent levels. Mortgage rates aren't set by the Federal Reserve directly. But when the Fed lowers its benchmark rate (the federal funds rate), mortgage rates tend to follow suit.
The Fed is expected to make its first rate cut before the end of 2024 and then continue with additional cuts in response to cooling inflation. This means that by 2025, mortgage rates could be quite a bit lower -- and buyers could be in for major relief.
To be clear, though, buyers should not expect the record-low mortgage rates that were available in 2020 and 2021. Back then, you could sign a 30-year loan at or below 3%, but we're nowhere close to getting back to that level.
A best-case scenario probably has mortgage rates dipping into the 4% range by the end of 2025. But rates in the 5% range are more likely.
Buyers also shouldn't necessarily expect sub-6% mortgage rates at the start of 2025. It may take some time to get there since the Fed is expected to cut its benchmark interest rate gradually.
How to get the best mortgage rate
If you're trying to borrow to buy a home, you of course want the most competitive mortgage rate you can snag. That translates to lower monthly payments.
One of the most important things you can do to score a lower interest rate on a mortgage is to boost your credit score. That score tells lenders how likely you are to repay your loan on time, so the higher it is, the more you might be rewarded in the form of a lower rate.
It's also a good idea to shop around for a mortgage. It may be that one lender is willing to offer you a 6.45% mortgage, while another comes through with an offer of 6.3%. Apply with a bunch of lenders to see what offers you get, but aim to do so within two weeks if possible.
When you apply for a loan, it counts as a hard inquiry on your credit report and can drag your credit score down by a few points. A single hard inquiry is generally no big deal, but a series of them could cause more credit score damage. But if you apply for the same type of loan multiple times within a two-week time frame, all of those applications will generally be considered a single hard inquiry, minimizing credit score damage.
Finally, you should know that lenders commonly offer much lower rates on 15-year loans than on 30-year loans. A 15-year mortgage will leave you with higher monthly payments, and those may not be manageable at a time when home prices are up.
But run the numbers based on your income and estimated home purchase price, because if you can swing those higher payments each month, you could save a lot of money of interest in the long run.
FAQs
There are no sources for officially projected interest rates in five years, but the Mortgage Bankers Association and Fannie Mae both predict rates on 30-year fixed-rate mortgages will drop to 5.9% by the end of 2025.
What are mortgage rates projected to be in 2025? ›
Fannie Mae's August 2024 forecast (its latest at the time of writing) predicts that 2025 rates will start at 6.2% and trickle downwards by 0.1% each quarter, landing somewhere near 5.9%.
Are mortgage rates expected to go down in the next 5 years? ›
Mortgage rates are expected to continue trending down through 2024 and into 2025, and we could see rates drop further into the 5% range.
What is the future of mortgage rates in 2026? ›
Leading forecasts suggest that by 2026, the average mortgage rate could drop to around 5.0% according to various sources, including the predictions shared by financial analysts on platforms such as Morningstar.
Will mortgage rates ever go down to 3 again? ›
Fed watchers now see at least two rate cuts before the end of the year, but some are betting on three, with more to come in the spring. Some economists say the benchmark rate could be as low as 3 to 3.5 percent by the second half of 2025.
What will interest rates be in 2026? ›
While 2026 is expected to be on a par with 2025, at 1.0%. The interest rate peaked at 5.25% in 2023 and is expected to be cut to 4.75% by the end of 2024. It is expected to be cut to 4.35% by the end of 2025 and then to 3.95% at the end of 2026. This is still well above the average for the previous decade.
Will Fed rate cuts lower mortgage rates? ›
“While not immediate, we do expect these rate cuts to eventually lower mortgage rates,” Rick said Tuesday in comments emailed to The Post. “This should increase housing supply in the coming months and years.” Falling mortgage rates may help more people purchase a house — if they can find one to buy, Brusuelas said.
Will 2026 be a good year to buy a house? ›
The median price of a previously owned US home climbed in May for the 11th month in a row to a record $419,300 — up 6% from a year earlier. Bank of America expects home prices will climb by 4.5% this year and then by another 5% in 2025 before eventually dipping by 0.5% in 2026.
What will mortgage interest rates be in 2027? ›
Likewise, we expect the 10-year Treasury yield to move down to an average of 3.0% in 2027 from its current yield of 3.7%. We expect the 30-year mortgage rate to fall to 4.75% in 2027 from an average of 6.75% in 2024. Inflation forecast.
Will my house be worth more in 5 years? ›
Average 5-year home price return since 1975
But this will vary a lot by area: The highest average five-year returns have been observed in Massachusetts (+36%), Rhode Island (+34%), and California (+34%). The lowest average five-year returns have been seen in Oklahoma (+14%), West Virginia (+15%), and Louisiana (+15%).
The median estimate for the fed-funds rate target range at the end of 2025 moved to 3.75% to 4%, from 3.5% to 3.75% in December. For the end of 2026, the median dot now shows a target range of 3% to 3.25%, versus 2.75% to 3% three months ago.
What will interest rates be in 2030? ›
Last year, the White House projection for bill rates in 2030 was 2.4%. Such a level would be much higher than has been typical since the turn of the century. Three-month bill rates averaged around 1.5% over that period.
How much does it cost to buy down interest rates? ›
This practice is often referred to as “buying down the interest rate” or a “buydown.” Each point the borrower buys costs 1 percent of the mortgage amount. One point on a $400,000 mortgage would cost $4,000, for example.
Will mortgage rates drop in 2025? ›
Indeed, Wells Fargo estimates the 30-year fixed mortgage rate will average 6.5% by the end of 2024 and 5.9% by the end of 2025. If you bought a home in 2022 or 2023, the prospect of refinancing your mortgage might seem appealing as rates fall.
What is the mortgage rate forecast for the next 5 years? ›
The August Housing Forecast from Fannie Mae puts the average 30-year fixed rate at 6.4% by year-end, a slight decline from 6.6% in the third quarter. All told, the mortgage giant predicts mortgage rates will average 6.7% in 2024 and 6% in 2025.
How to get a 3 percent mortgage rate? ›
To qualify, you need to:
- Live in the home yourself as a primary residence.
- A credit score above 580.
- A debt-to-income-ratio below 50%.
- The ability to fund the down payment either in cash or with the support of a second loan at current interest rates.
Current Mortgage Rates for September 16, 2024
| LOAN TERM | RATE | CHANGE |
|---|
| 30-Year Mortgage Rate | 6.60% | -0.14 |
| 15-Year Fixed Rate | 5.71% | -0.19 |
| 30-Year Jumbo Mortgage Rate | 6.71% | -0.16 |
2 days ago
"I expect six rate cuts through the end of 2025, each a quarter percentage point, putting the federal funds rate just below 4%," said Mark Zandi, chief economist at Moody's. He expects auto loan rates to fall 75 percentage points through the end of 2025, putting the five-year car loan rate at close to 7%.
Why are mortgage rates so high? ›
When inflation is running high, the Fed raises those short-term rates to slow the economy and reduce pressure on prices. But higher interest rates make it more expensive for banks to borrow, so they raise their rates on consumer loans, including mortgages, to compensate.
