Mortgage buydowns may not make sense if you don't plan on staying in the home long term, since it can take several years to recoup your initial investment. If you get a mortgage buydown, be prepared for your monthly payments to increase after the buydown period ends (typically after one to three years).
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The National Association of Home Builders expects the 30-year mortgage rate to decrease to around 6.5% by the end of 2024 and fall below 6% by the end of 2025, according to the group's latest outlook.
Freddie Mac: In their December outlook, Freddie Mac researchers said they believe mortgage rates will go down "very gradually" in 2025. The Mortgage Bankers Association: The MBA sees mortgage rates trending down throughout 2025. The group thinks rates could end 2025 at 6.40% and tick down to 6.30% in 2026.
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.
At its February 2024 meeting, the Reserve Bank Board decided to leave the cash rate target unchanged at 4.35 per cent. This decision supports progress of inflation to the midpoint of the 2–3 per cent target range within a reasonable timeframe and continued moderate growth in employment.
By 2026, the federal funds rate is expected to fall further to 2.9%. Inflation forecasts have also been adjusted upward. Officials now project headline inflation to reach 2.5% by the end of 2025, compared to September's estimate of 2.1%.
Bank of Canada Rate Forecast for 2024: Further Decrease in the Overnight Rate. The policy rate is 4.25%, while the last inflation reading for July 2024 was 2.5%. This suggests a real policy rate of 1.75%. At the same time, BoC estimates the neutral real interest rate to be between 0.25% and 1.25%.
Mortgage rates may decline somewhat in 2025 but the Federal Reserve currently expects interest rate cuts to be limited. Where mortgage costs trend from here will depend in part on unemployment and inflation data. That will, in term, inform interest rate decisions from the Fed.
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.
Fannie Mae expects rates to average 6.4% for the year. Wells Fargo projects a slight decline, with rates averaging around 6.3% by the end of the year. Goldman Sachs predicts rates will remain above 6% through 2025.
Which bank gives the highest interest rate on FD? As of 2024, Canara Bank offers the highest interest rate of 7.25% for 444 days.
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. But mortgage rates recently jumped back up toward 7%.
Consider the following example for a 30-year loan: On a $100,000 mortgage with an interest rate of 3%, your monthly payment for principal and interest would be $421 per month. If you purchase three discount points, your interest rate might be 2.25%, which puts your monthly payment at $382 per month.
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.
Conclusion and Interest Rate Prediction Calendar
In 2025 and 2026 mortgage rates will not likely normalize at the lowest 2% levels seen during covid. The expectation is that 2025 – 2026 mortgage rate normalization occurs in the high 3% – low 4% range depending on the rate type.
Commentary from Perch's CEO and Principal Mortgage Broker, Alex Leduc: The expected pace of decreases remains largely consistent and is expected to be roughly 0.50% in 2025 and another 0.50% in 2026. Interestingly, the longer term normalized rate has crept up in 2027 and beyond.
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.
But it's also a far cry from the sub-3% mortgage rates borrowers enjoyed back in 2020 and 2021. If you're looking to buy a home, you may be wondering if mortgage rates will ever drop below 3% again. The answer is that it's possible, but unlikely.
I'm holding out a forecast for a resting BoC rate of 2.50% — for a total prime rate drop of 2.5% by the end of 2025. Some experts have pegged a BoC resting rate of 2.0% in 2025 to spark our economy in light of trade turmoil, though that prediction lane is lined with too many brambles at the moment.