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.
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.
So far the decline in mortgage costs from November 2023's peak levels has been bumpy. 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.
Projected Interest Rates in the Next Five Years
ING's interest rate predictions indicate that in 2024, rates will start at 4%, with subsequent cuts to 3.75% in the second quarter, 3.5% in the third, and 3.25% in the final quarter. In 2025, ING predicts a further decline to 3%.
The 10-year treasury constant maturity rate in the U.S. is forecast to decline by 0.8 percent by 2026, while the 30-year fixed mortgage rate is expected to fall by 1.6 percent. From seven percent in the third quarter of 2023, the average 30-year mortgage rate is projected to reach 5.4 percent in 2026.
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.
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.
The requirements for a conventional loan include: Credit score: 620. Debt-to-income (DTI) ratio: 45 percent (with exceptions up to 50 percent) Down payment: 3 percent for a fixed-rate loan; 5 percent for an adjustable-rate loan.
However, without a major downturn or global catastrophe, it's highly unlikely that mortgage rates will drop to their 2020-21 levels. In fact, many economists and housing market experts hope they don't. In the long term, mortgage rates may stabilize between 5.5% and 6%, which is a historically normal range.
Mortgage rates have tended to fall in response to recent recessions.
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.
There is technically no limit to how many times you can refinance your home. If you meet the lender's qualifications and it makes financial sense for your situation, you can refinance as often as you wish. However, just because you have the option to refinance multiple times doesn't mean it's always a wise choice.
In the long term, home prices and sales tend to be resilient to rising mortgage rates, housing economists say. That's because individual life events that prompt a home purchase — the birth of a child, marriage, a job change — don't always correspond conveniently with mortgage rate cycles.
Current mortgage interest rates in California. As of Sunday, January 12, 2025, current interest rates in California are 7.33% for a 30-year fixed mortgage and 6.61% for a 15-year fixed mortgage.
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.
Fannie Mae's chief economist says, “Long-run interest rates have moved upward over the past couple of months following a string of continued strong economic data and disappointing inflation readings.” They are putting the average 30-year fixed rate at 6.5% in the beginning of 2025, declining to 6.1% in 2026.
Although interest rate derivatives are the most direct way to trade on rates, there are other ways to trade on them. One alternative way to trade on interest rates is by trading bonds, which often do well when interest rates decrease and drop in value when interest rates rise.
The easiest and most fruitful way for homebuyers and existing homeowners to lower their mortgage rate is to compare rates among lenders, but borrowers can also be opportunistic by taking out a mortgage in January when rates tend to be at seasonal lows.
Reduce your loan term
Making the equivalent of two extra mortgage payments per year, for example, will knock off 9 years and 4 months from the total term of your loan. A shorter mortgage term also means that you'll own your house outright sooner.
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.
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.
"While I'd love to say rates will drop below 6% in 2025, I think it's a moderate probability and not a certainty," says Steven Parangi, a licensed mortgage loan originator and owner of Alpine Mortgage Services.
Where will mortgage rates go in 2025? Aside from typical day-to-day fluctuations, mortgage rates are expected to stay above 6.5% for the next few months. If inflation continues to cool and the Fed is able to carry out its projected two 0.25% cuts, mortgage rates could inch down closer to 6.25% later in the year.