According to BlackRock's analysts , in 2025, the Fed will likely reduce rates further to around 4% and then pause, depending on inflation and labor market data. BlackRock highlighted the Fed's Summary of Economic Projections (SEP) , which suggests a potential range for the federal funds rate between 3.75% and 4%.
“Our view is that [the Fed] probably do have one more [cut], but pauses at or above 4%” in 2025. Against this backdrop, another scenario becomes possible, if unlikely: A strong economy and renewed rise in inflation could prompt the Fed to raise rates again in 2025.
'Goldman Sachs is being way too optimistic'
The Times poll found that 15% of 51 economists predict the base rate to fall to 3.5%, and three respondents foresee 3.25% by Q4 2025.
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.
In our 2025 mortgage forecast, experts outlined a rough range between 5% and 7% for the average 30-year fixed mortgage. Most housing market forecasts predict rates landing around 6.4% at the end of the year.
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.
Oxford Economics is predicitng that base rate will eventually fall to 2.5 per cent in 2027 where it will broadly remain throughout 2028 and 2029.
NAHB: Rates Will Average 6.36% in 2025 and 5.93% in 2026. 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.
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.
So in 2025, expect modest declines in rates for mortgages, auto loans and credit cards, according to Bankrate's chief financial analyst Greg McBride. “Even with those declines, we're not going back to a low-rate environment,” McBride said. “We're going from a high-rate environment to not as high.
After 14 months of stagnancy, the Federal Open Market Committee (FOMC) lowered the federal funds rate three times in 2024, ending the year with a target range of 4.25% to 4.50%, the lowest since February 2023.
and then projects that mortgage interest rates – in particular the 30-year fixed rate, which is closely tied to the federal funds rate and the 10-year Treasury note yield – will remain elevated, and only decline 0.2 percent from 6.5 percent in 2025 to 5.9 percent in 2027.
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.
Despite an overall reduction in borrowing costs over the past two years, the 30-year mortgage rate recently moved up from a little above 6% in September 2024 to closer to 7% in January 2025. That contrasts with longer term mortgage rates holding at historically low levels of between 2% and 3% for much of 2020 and 2021.
Morgan Stanley is more bullish. It predicts five rate cuts in February, March, May, August, and November, resulting in a base rate of around 3.5%. Bank of America also sees the “terminal rate” of 3.5% by early 2026, which implies five rate cuts from the current level.
Mortgage points, also called discount points, lower your interest rate for the life of the mortgage. A lender may allow borrowers to purchase as little as a fraction of a point or up to four points. One mortgage point typically costs 1% of your loan and permanently lowers your interest rate by about 0.25%.
The benchmark interest rate in the United States was last recorded at 4.50 percent. Interest Rate in the United States averaged 5.42 percent from 1971 until 2024, reaching an all time high of 20.00 percent in March of 1980 and a record low of 0.25 percent in December of 2008.
These futures can also be short-term or long-term. Short-term interest rate futures have an underlying instrument with a maturity of less than one year, while long-term interest rate futures have an underlying instrument with a maturity of over one year.
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.
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.
Mortgage rates have tended to fall in response to recent recessions.
Interest rates and fees
Second mortgages are riskier for lenders, so they charge steeper rates. You'd also pay a lower rate on a regular rate-and-term refinance or cash-out refinance. Second mortgages also come with closing costs, which you'll need to pay upfront when taking out the loan.