Mortgage Rate Forecast for 2025

What Will Mortgage Rates Be Like in 2025?

As of early December 2024, the national average interest rate for a 30-year fixed-rate mortgage was 6.69%, according to Freddie Mac. While that's down from a 7.79% high in October 2023, it follows a two-year low of 6.08% in September 2024.

Moving into the new year, experts generally agree that mortgage rates will decrease. However, prospective homebuyers and homeowners looking to refinance may not get the relief they're hoping for.

Here are interest rate predictions from some of the top experts:

It's important to note that these predictions are based on current economic data trends. As a result, they may change over time.

How Mortgage Rates Could Impact the Housing Market

Because interest rates directly influence the cost of owning a home, they can have a significant impact on the housing market as a whole. Here are just a few ways.

High Rates Reduce Demand

The median home price skyrocketed in 2020 and 2021, and with interest rates joining the upward trend, monthly housing payments hit an all-time high (an average of $2,894 per month) earlier this year, according to Redfin.

With inflation already putting pressure on consumers' wallets, many Americans may put off buying a home until interest rates start to come down. For example, only 17% of home sellers have received four or more offers in 2024, compared to 26% in 2022, according to Zillow.

At the same time, housing inventory remains below pre-pandemic levels, so sustained lower demand could allow inventory numbers to catch up a little. As rates start to come down, demand may start to pick up again, meaning more competition among prospective buyers.

The Lock-In Effect Will Persist

One of the reasons housing inventory may take some time to recover is what's called the lock-in mortgage effect.

Essentially, the lock-in effect occurs when a significant number of homeowners have much lower interest rates than what's currently available. The result is that many are hesitant to sell their homes and buy a new one at a much higher rate.

According to Realtor.com, a staggering 84% of outstanding mortgages have an interest rate lower than 6%, which is about where rates are expected to land by the end of 2025. While some with higher rates may be willing to take on a higher monthly payment, the 56% with a rate below 4% are less likely to.

Recent Homebuyers May Be Able to Refinance

If you bought a home while rates were near their 2023 peak, it could make sense to refinance your loan sometime next year, even if the forecasts remain much higher than the record low of 2.65% recorded in January 2021.

As more homeowners refinance, housing payments will start to come down, making homeownership more affordable.

Learn more >> Housing Market Predictions: What to Expect in 2025

Are Mortgage Rates Already Decreasing?

While mortgage rates are lower than they were at the beginning of 2024, it's been a bumpy road, and they've been trending upward again from a one-year low in September.

One of the reasons for this is that the 10-year Treasury yield, which is widely used as a benchmark for mortgage rates, has remained stubborn despite declining inflation.

There are many reasons for this, including inflation expectations in the near future, a bullish economic outlook, rising national debt and government spending proposals. Experts anticipate that the 10-year Treasury yield will remain roughly the same or higher next year.

Learn more >> How Reduced Interest Rates Affect Mortgage Costs

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.

This is primarily due to the fact that pandemic-era interest rates were a result of considerable economic uncertainty, leading the Federal Reserve to push its federal funds rate to near zero and sparking recession fears. Quantitative easing efforts by the federal agency also assisted in pushing rates to record lows.

Barring another financial panic, 3% rates may be close to unattainable in the near future.

Learn more >> How to Deal With High Mortgage Rates

Should You Wait for Lower Rates to Buy a House?

While higher mortgage rates may cause some prospective homebuyers to pause, others may still be willing to take on higher costs for the benefits of homeownership. As you consider whether or not to wait for lower rates, here are some factors to keep in mind:

• Your budget: If you can comfortably afford a higher monthly payment without sacrificing other important financial needs and objectives, higher rates may not be as much of a concern for you. However, if buying in today's market could create considerable financial stress, it may be better to wait.
• Your down payment: Many mortgage experts recommend a down payment of 20% to qualify for better terms (and to avoid private mortgage insurance if you're applying for a conventional loan). A higher down payment can also reduce your monthly housing payment because you're financing a lower amount. If you don't have much money to put down, it may be better to wait and build up your savings.
• Your credit score: The minimum credit score required to get most mortgage loans is 620, but the higher your score, the better your odds of qualifying for favorable terms. If your credit needs some work, you may be better off working on improving your credit before you buy.
• Other debts: If you have high-interest debt, such as credit card balances, adding a mortgage loan may make it more difficult to keep up with your debt obligations and savings goals—especially during a period of high mortgage rates. In this instance, it may be a good idea to work on eliminating expensive debt before buying a home.

Keep in mind that if you do choose to buy a home at a higher interest rate, you'll have the opportunity to refinance the loan at a lower rate in the future to reduce your monthly payment.

Learn more >> Should I Buy a House When Rates Are High or Wait?

How to Get a Lower Mortgage Rate

While there's nothing you can do about the economic conditions that determine market rates, you can exert some control over your mortgage interest by qualifying for a better interest rate. Here are some steps you can take:

• Improve your credit. Register with Experian to get free access to your FICO^® Score^☉ and Experian credit report. Using these resources, you can pinpoint problem areas to address and build positive creditworthiness.
• Put more money down. The higher your down payment, the less of a risk you pose to the lender. As previously mentioned, a 20% down payment is the gold standard because it can also minimize your insurance costs on a conventional loan.
• Pay down debt. Your debt-to-income ratio (DTI) is another crucial factor lenders consider when determining your loan terms. If you can, consider paying down credit card balances and loans with small balances remaining. The lower your DTI, the greater capacity you'll have to pay your debts on time.
• Find a less expensive home. Lower loan amounts tend to be less risky to borrowers, so if you can find a home that suits your needs and costs less than your dream house, it could be financially prudent to opt for the less expensive option.
• Choose a shorter loan term. In general, 15-year mortgages charge lower interest rates than 30-year mortgages. But even with a lower rate, you can expect a higher payment on shorter-term loans. As a result, consider this option only if you can afford it.
• Buy down the rate. Many lenders allow you to effectively buy down your interest rate by buying what's called discount points—a form of prepaid interest. Each point typically costs 1% of your loan amount and reduces your interest rate by 0.25%.

The Bottom Line

Mortgage interest rates are expected to decrease in 2025, but prospective homebuyers can continue to expect some of the highest rates so far this century. If you're thinking about buying a home, carefully consider your financial situation and monitor your credit to determine whether the timing is right. If not, continue to work on building your down payment fund and other savings balances, improving your credit and paying down debt.