Mortgage Rates Forecast for 2025: Will Rates Finally Drop?
Mortgage rates have been a key concern for homebuyers and homeowners alike, fluctuating in response to Federal Reserve policies, inflation data, and economic uncertainty. After a surge in mortgage rates that reached highs of over 7% in 2024, many experts predicted a decline heading into 2025. However, rates have remained stubbornly high, with only modest movement downward.
With the Federal Reserve cutting interest rates for the third time in December 2024 and signaling a cautious approach for 2025, the big question remains: Will mortgage rates drop significantly, or will they remain elevated?
In this article, we’ll break down:
- What’s driving mortgage rates in 2025
- Expert predictions for how much rates could fall
- Whether it’s a good time to buy or refinance a home
- Key factors to watch in the mortgage market
What’s Driving Mortgage Rates in 2025?
Mortgage rates are influenced by a combination of Federal Reserve policy, economic indicators, and investor sentiment. The Federal Open Market Committee (FOMC) has already lowered the federal funds rate by a total of 100 basis points (1.00%) since 2024, but mortgage rates have not reacted as strongly as some had hoped. Why?
1. Inflation Concerns & Economic Uncertainty
Even though inflation has cooled from its 2022 highs, recent economic data shows signs of reacceleration, causing the Fed to slow its rate-cut plans. Higher-than-expected inflation numbers have kept mortgage rates elevated as investors worry that inflation will remain sticky, making aggressive rate cuts less likely.
2. The Fed’s Cautious Approach
While the Fed has eased rates, policymakers have signaled they will proceed with greater caution moving forward. The latest Fed projection suggests only two additional quarter-point rate cuts in 2025, a slowdown from the four rate cuts previously anticipated.
3. Global Economic Policies & Political Uncertainty
With a new administration in the U.S. and uncertainty about economic policies, financial markets remain volatile. Trade policies, government spending, and inflation-fighting measures will all play a role in shaping where rates head next.
Mortgage Rate Predictions for 2025
Different housing and finance institutions have varied predictions for where mortgage rates will go in 2025. While some expect rates to drop closer to 6% or lower, others believe rates will remain in the mid-to-high 6% range for much of the year.
LoanDepot: Rates could remain above 6% through mid-2025
“While it’s too soon to predict mortgage rates with certainty, we currently anticipate they could dip into the mid-6% range by the middle of the year.” — Jeff DerGurahian, Chief Investment Officer at LoanDepot.
National Association of Home Builders (NAHB): Rates could fall below 6% by year-end
NAHB predicts that mortgage rates will land at around 6.5% by the end of 2024 and could dip below 6% by late 2025.
Fannie Mae: Rates will decline gradually but remain in the mid-6% range
Fannie Mae revised its 2024 forecast, now expecting 30-year fixed mortgage rates to average 6.6% in Q4 2024, followed by 6.5% in Q1 2025 and 6.4% in Q2 2025.
Freddie Mac: Expect volatility but a gradual decline
Freddie Mac has stated that rates will remain elevated and volatile through 2024, with a gradual decline throughout 2025.
Mortgage Bankers Association (MBA): Rates will stabilize at 6.6% before ticking down
The MBA forecasts that the 30-year fixed mortgage rate will average 6.6% in late 2024 and gradually decline to 6.5% by mid-2025.
Bluebird Lending: Minimal declines in mortgage rates
“We saw a slight decrease in rates leading up to the Fed rate cut,” says Jess Schulman, President at Bluebird Lending. “It is possible to see further reductions, but not enough to be meaningful in the short term.”
RE/MAX: Rates will remain at elevated levels until early 2025
RE/MAX projects that mortgage rates will stay around 6.7% into early 2025 before beginning a gradual downward trend later in the year.
Should Homebuyers Wait for Mortgage Rates to Fall?
Many prospective homebuyers are wondering whether they should buy now or wait for lower mortgage rates. However, waiting can be a risky strategy.
Why Buying Now Might Make Sense
- Home prices are still rising – While mortgage rates may go down, home prices are expected to continue appreciating. Waiting for lower rates may mean paying more for the same house in the future.
- Competition could increase – If rates drop significantly, demand will likely surge, creating a more competitive market.
- Refinancing remains an option – Buyers who lock in now can refinance later if rates decrease.
Why Waiting Might Be Better
- If rates drop significantly – If rates fall closer to 5%, buyers could save thousands of dollars over the life of their loan.
- If housing supply increases – More inventory could lead to better deals for buyers in the coming months.
Ultimately, the right time to buy depends on individual financial circumstances. If you can comfortably afford a home now, there’s no need to wait. But if your budget is tight, waiting could provide more options.
Should You Refinance in 2025?
For existing homeowners, refinancing is a common strategy when mortgage rates drop. But does it make sense to refinance in 2025?
If You Have a Low-Interest Mortgage (Below 4%)
If you locked in a sub-4% mortgage in 2020 or 2021, refinancing likely won’t make sense in 2025 unless you need cash out or want to shorten your loan term.
If You Have a High-Interest Mortgage (Above 7%)
For those with mortgage rates at 7% or higher, refinancing in mid-to-late 2025 could yield significant savings if rates drop closer to 5.5%–6%.
Key Refinancing Considerations
- Closing costs: Make sure the savings justify the upfront cost.
- Loan term: Consider whether a shorter-term refinance makes sense.
- Cash-out refinancing: If you need to tap into home equity, now could be a good time.
Conclusion: What to Expect in the Mortgage Market for 2025
The consensus among experts is that mortgage rates will gradually decline in 2025 but will not drop drastically. While some forecasts suggest rates could fall below 6% by year-end, others expect rates to hover in the mid-to-high 6% range for much of the year.
For homebuyers, waiting for rates to drop could be risky, as home prices and demand may increase once rates fall. For homeowners considering refinancing, those with rates above 7% may benefit from refinancing in late 2025, while those with lower rates may not see enough savings to justify a refinance.
As always, buyers and homeowners should stay informed, compare lender offers, and make decisions based on their personal financial situation and long-term goals.
