Mortgage rates dropped for the third consecutive week after fresh economic data kept expectations about the Federal Reserve's next interest rate cut intact. The average 30-year mortgage rate fell to 6.6% in the week through Wednesday, compared with 6.69% a week earlier, according to Freddie Mac data.
Lawrence Yun, chief economist at the National Association of Realtors, even told CNBC in 2023 that he doesn't think mortgage rates will reach the 3% range again in his lifetime.
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.
When you lock the interest rate, you're protected from rate increases due to market conditions. If rates go down prior to your loan closing and you want to take advantage of a lower rate, you may be able to pay a fee and relock at the lower interest rate. This is called “repricing” your loan.
The current economic and political climate make it unclear how low rates will go in 2025. If you're risk-averse and want to avoid any chance of your mortgage rate increasing, locking in your mortgage rate today may be the best option.
Generally, once you've locked in a mortgage rate, the terms are fixed and usually cannot be renegotiated. However, some lenders offer a float down option, allowing you to negotiate mortgage rates if market conditions shift favorably during the rate lock-in period.
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.
At the September 2024 Federal Open Market Committee (FOMC) meeting, the Federal Reserve (Fed) lowered interest rates by 50 basis points, easing monetary policy for the first time in four years due to progress on the Fed's dual mandate. This lowers the interest rate target to a range of 4.75% to 5%.
In December 2024, 30-year mortgage rates averaged around 6.42%, according to Zillow data. Average 15-year mortgage rates were 5.82%.
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.
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 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%.
Today's rates seem high compared with the recent 2% rates of the pandemic era. But experts say getting below 3% on a 30-year fixed mortgage is unlikely without a severe economic downturn. Since the 1970s, the average rate for a 30-year fixed mortgage has been around 7%.
Mortgage rates averaged 6.6% for 30-year, fixed-rate loans in the week ending Dec. 12, according to the latest Freddie Mac data. The financial markets expect the Fed will only lower rates twice in 2025. This is likely to push mortgage rates down, at least a little.
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.
After hitting record-low territory in 2020 and 2021, mortgage rates climbed to a 23-year high in 2023 before descending somewhat in 2024. Many experts and industry authorities believe they will follow a downward trajectory into 2025. Whatever happens, interest rates are still below historical averages.
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.
Strong labor market data combined with recent sticky inflation makes it less likely that the Federal Reserve will cut the federal funds rate anytime soon.
The current Bank of America, N.A. prime rate is 7.50% (rate effective as of December 19, 2024).
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.
Asking your lender to reduce your home loan's interest rate can be as simple as giving them a call. A home loan lender typically offers more competitive rates to new customers to attract them, so researching these rates online can be beneficial.
Most lenders offer rate holds of 30, 60, 90, or 120 days, but it is possible to find rate holds for up to 150 days. During the rate hold, the mortgage rate will stay unchanged. If mortgage rates go up during the lock-in period, you can benefit from a lower locked rate.