Will Mortgage Rates Ever Go Down to 3% Again? While it's possible that interest rates can return to 3% territory in the future, it's highly unlikely that it'll happen anytime soon. In fact, some experts say it may take decades for mortgage rates to return to the levels homebuyers enjoyed just a few years ago.
The Mortgage Bankers Association predicts in its Mortgage Finance Forecast that mortgage rates will gradually slide from 6.6% at the beginning of 2025 to 6.3% throughout 2026. Unlike Fannie Mae, MBA does point to the presidential election as a reason for its upward revisions over the past two months.
Though mortgage rates have fallen from their 8% peaks, the decline has been slow and gradual. Over the past 12 months, the average 30-year fixed mortgage rate has fluctuated between 6.5% and 7.5%. Most housing economists had expected mortgage rates to drop to 6% by the end of 2024, moving into the mid-5% range in 2025.
Experts overwhelmingly say that the housing market isn't going to crash anytime soon. The last housing crash helped cause today's lack of supply, which is what's keeping prices from falling. Mortgage rates, however, are expected to ease in 2025. This will help make homeownership more affordable.
10 markets with the biggest drops in home prices
Miami, Florida — 12.4% Cincinnati, Ohio — 9.5% San Francisco, California — 8.9% Kansas City, Missouri — 8.4%
A slowing economy could also push mortgage rates lower, but Parangi warns this isn't guaranteed. "A mild recession would push rates down as the Fed tries to stimulate growth," Parangi says. "But it isn't always good for mortgage rates if it brings market instability or more inflation."
Locking in early can help you get what you were budgeting for from the start. As long as you close before your rate lock expires, any increase in rates won't affect you. The ideal time to lock your mortgage rate is when interest rates are at their lowest, but this is hard to predict — even for the experts.
Today's national mortgage interest rate trends
On Monday, January 13, 2025, the current average interest rate for the benchmark 30-year fixed mortgage is 7.06%, rising 6 basis points over the last week.
Current mortgage interest rates in California. As of Monday, January 13, 2025, current interest rates in California are 7.33% for a 30-year fixed mortgage and 6.61% for a 15-year fixed mortgage.
The bottom line. Predicting exactly when mortgage rates will hit 5% is difficult. It could happen by late 2025, but market conditions could speed up or delay this timeline. "Some consumers feel rates will drop in the next two to four months [but] that may never happen," says Rathbun.
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.
The current Bank of America, N.A. prime rate is 7.50% (rate effective as of December 19, 2024).
Google search results for the term "assumable mortgage" spiked in May, following a steady upward trend starting in 2022. Mortgage assumptions allow buyers to take over an existing mortgage at its current rate, possibly securing mortgage rates as low as 2% or 3% depending on when the original mortgage was taken out.
The lowest average mortgage rates on record came about when the Federal Reserve lowered the federal funds rate in 2020 and 2021 in response to the pandemic. As a result, the weekly average 30-year, fixed-rate mortgage fell to 2.65%, while the average 15-year, fixed-rate mortgage sunk to 2.10%.
Why mortgage rates won't drop to 2% again. Again, when mortgage rates hit record lows early in the pandemic, the federal funds rate was near zero. Barring another major economic shock, the Fed projects that the federal funds rate will only take modest adjustments downward over the next several years.
Current Forecasts and Expert Opinions
The short answer is: It's highly unlikely we'll see mortgage rates drop back to 3% anytime soon. However, recent inflation numbers point to cooling of the pace of inflation.
Monday is the best day to lock-in mortgage rates; Wednesdays are risky. Mortgage rates are in constant flux, even changing multiple times a day. This volatility can make it challenging to know when to lock in your rate.
What happens if you lock in a mortgage rate and it goes down? If you're locked in and mortgage rates fall, you'll be stuck paying the higher rate unless your rate lock includes a float-down option. A float-down option lets you honor your locked-in rate or the current rate, whichever is lower.
Possibly. McBride expects 30-year mortgage rates to retreat to 6.5 percent by the end of 2025 — but in the nearer term, he sees rates moving higher. “Bond yields are flirting with levels not seen since late 2023, pushing mortgage rates further above the 7 percent mark,” he says.
Mortgage rates dropped this week after four weeks of increases. Mortgage rates ticked down slightly this week, a tiny boon to buyers eager to make a move with newly listed homes coming to market.
Your mortgage payments could change drastically because of a collapsing dollar, especially if you have an adjustable rate. Those interest rates would follow the trend of the economy itself, so if the Fed raises interest rates, mortgage rates will also climb. This would lead to volatility in your mortgage payments.
Stocks and bonds have relatively low transaction costs, allow you to diversify more easily and leave your cash more liquid than real estate (although the stock market is typically more volatile than the housing market). Meanwhile, real estate is a hedge against inflation and has tax advantages.