By Molly Grace | Business Insider
Last year, mortgage rates were supposed to go down a lot. But in spite of some big drops in the fall of 2024, rates ended the year close to where they started.
What will happen in 2025? Most forecasts expect mortgage rates to go down slightly this year. But there’s a lot of uncertainty in the economic outlook right now, especially regarding tariffs, which makes it hard to say for sure how rates will trend.
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 first week of April, Freddie Mac’s average 30-year rate was 6.64%.
- Fannie Mae: Fannie Mae’s latest forecast predicts that 30-year mortgage rates will tick down to 6.30% by the end of the year. Its forecast for 2026 has rates falling to 6.20%.
- Freddie Mac: In their January outlook, Freddie Mac researchers said mortgage rates may stay “higher for longer” this year, which could push more buyers onto the market since they aren’t waiting for lower rates.
- The Mortgage Bankers Association: The MBA’s forecast predicts that rates could end 2025 at 6.50% and tick down to 6.40% in 2026.
- The National Association of Realtors: NAR’s quarterly forecast has 30-year mortgage rates near 6.40% in 2025 and dropping to 6.1% in 2026.
- Realtor.com: In its 2025 housing forecast, Realtor.com anticipates that mortgage rates will 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 6.65% in 2025. It also believes rates could ease in 2026, decreasing to a yearly average of 6.19%.
It’s notable that none of these forecasts anticipate mortgage rates dropping lower than they were in 2024. The lowest rate recorded in 2024, according to Freddie Mac, was 6.08% in September. So even if rates do drop this year, they may not fall enough to improve affordability for borrowers.
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.
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.
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 February 2025, the consumer price index was up 2.8% year over year, a decrease from the previous month.
As long as inflation slows, rates should come down, too. But if it remains above the Fed’s target, rates might not drop.
In March 2025, average 30-year mortgage rates were 6.45%, according to Zillow data. This is a six-basis-point decrease from the previous month.
Most major forecasts expect rates to fall in 2025. But how much will mortgage rates go down? It depends on how tariffs impact the economy and whether the Fed is able to continue lowering its benchmark rate.
Rates have been very sensitive to economic news, and recent data has been relatively strong, keeping rates up. However, sweeping new tariffs announced this month have led investors to fear that the economy could enter a downturn. When the economy weakens, mortgage rates often fall. So it’s possible we could see rates drop in the coming weeks.
It’s also possible that these new tariffs will push inflation higher, which would likely cause mortgage rates to rise.
Mortgage rates are currently expected to go down in 2025. But with so much uncertainty, this forecast may change.
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 probably won’t see rates that low again.
Mortgage rate forecasters typically don’t project out very far because rates are influenced in large part by the economy, which is often unpredictable or volatile.
Based on current conditions, mortgage rates may 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.
In a year or two, it’s possible we’ll see rates settle in closer to 6%. But again, it depends on what the economy does. If growth slows or we enter a recession, rates may drop more. If inflation reignites, rates may go back up.
Should you wait for mortgage rates to drop before buying a house?
Some hopeful homebuyers have decided to wait for lower rates to start shopping for homes. But that’s not necessarily the best strategy, especially since there’s no guarantee that rates will drop enough to improve affordability.
If you’re in a place where buying makes sense for you, it’s probably better to go ahead and start the process rather than wait for rate drops that may not come. And if rates do drop, you can always refinance.
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 when rates drop.
“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.
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.
For example, you might not stand to benefit much 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.
