Mortgage Interest Rates Forecast For 2025

While predicting the future is the domain of science fiction or fantasy, it’s not wrong to want to know where mortgage rates might be headed. This and other housing market predictions can make an impact on your decisions if you’re buying a new home or refinancing your current one. While no one can be certain, here’s a roundup of mortgage interest rates forecasts.

2025 Mortgage Interest Rate Predictions From The Experts

It’s likely that mortgage rates fall in the coming year. The Federal Reserve (Fed) has signaled more concern about the labor market as opposed to inflation. When attention turns to the labor side of the coin in the Federal Reserve’s dual mandate of maximum employment and stable prices, that often means lower rates to boost investment. Mortgage rates would benefit.

Let’s get into the forecasts from the experts and then dig into their reasoning. Each prediction assumes a 30-year fixed rate. It’s worth noting that the Freddie Mac “prediction” only covers through the end of 2024, but we can do some conjecture based on what’s included in their analysis:

• Freddie Mac: above 6%, but falling
• Fannie Mae: 5.9%
• National Association of Home Builders: 5.86%
• National Association of REALTORS^®: Several rate cuts in the coming year

Freddie Mac

Freddie Mac does as much interest rate tracking as anyone based on weekly surveys of mortgage lenders. But they’re pretty cautious in their forecasting, saying only that rates will remain above 6% through the end of this year. They do say that rates should fall, though. They also think that mortgage volume should go up a bit, and that typically happens when rates drop.

Fannie Mae

Fannie Mae predicts that interest rates will average 5.9% in 2025. Interestingly though, they break down their prediction by quarters as well. By the fourth quarter of next year, they see average rates being as low as 5.7%. Based on this, they see total mortgage origination volume across the industry increasing from $1.68 trillion to $2.155 trillion.

National Association Of Home Builders

The NAHB sees rates in 2025 averaging 5.86%. What’s kind of cool about the NAHB data is that it also forecasts treasury rates. There is a very high correlation between the 10-year treasury rate on any given day and the 30-year fixed mortgage. That rate is expected to be 3.53% in 2025, down from 4.12% this year.

National Association Of REALTORS^®

The NAR doesn’t give a specific prediction in terms of interest rates for 2025, but they do say in a presentation given this past July that the organization feels the Fed has room to lower the target for its benchmark federal funds rate six to eight times before getting to a neutral interest rate.

The Fed has already lowered the rate by 0.5% from where it was prior, double the rate of its usual move, so it’s possible you may think about lowering the top and bottom end of those estimates for the number of cuts. But because mortgages tend to at least move in the same direction as the federal funds rate, the trade group feels pretty good about rates falling.

2025 Mortgage Rate Predictions Vs. Past Rates

When industry analysts predict mortgage rates, they usually predict only the 30-year fixed rate, as the interest rates for every other term follow from that. The prediction we’ve inserted here comes from Fannie Mae. Historical data is taken from the Freddie Mac Primary Mortgage Market Survey^® based on the second week of each quarter.

How Do 2025 Mortgage Rate Forecasts Compare To Past Rates?

Fannie Mae’s prediction for the 30-year fixed rate in the first quarter of 2025 is 5.9%. Although not represented in the data above, the last time that rate showed up in Freddie Mac’s weekly survey was December 1, 2022. So that’s kind of where you can think about rates being in the near future if you believe the predictions.

The Federal Reserve’s projections for the federal funds rate show several more cuts over the next couple of years. This would tend to push mortgage rates down. Although not directly correlated, they follow the same direction. However, it’s likely unrealistic to think we would get down to the rates of 2020 – 2021 without a major economic shock. COVID-19 was the last one.

Factors Influencing 2025 Forecasts For Interest Rates

In attempting to forecast future mortgage rates, analysts look at several factors, including all of the following:

• Inflation: Inflation affects mortgage rates because to get inflation under control, the Federal Reserve raises interest rates. The idea is to make the cost of borrowing more expensive so that people spend less money, which drives prices down.
• Economic upturns and recessions: During an economic upturn, rates are going to tend to rise over time because inflation is also a side effect of booming economies as people have more money. During a recession, rates are often lowered because officials want to give the economy a shot in the arm by making borrowing costs cheaper and encouraging people to spend.
• Global events: Mortgages are traded on the bond market, and people often buy bonds because they are considered a safer investment in times of turmoil. So when wars or unexpected economic events such as Brexit happen, mortgage pricing often gets better as investors flood the bond market.
• The Federal Reserve: Because of their longer-term duration, mortgage rates aren’t as impacted by the federal funds rate as credit cards would be. But they still follow the same general direction.
• Bond prices: Bonds impact mortgage rates more directly than anything else. The yield on mortgage bonds is directly tied to mortgage rate and there is also a correlation with the return for the 10-year U.S. Treasury bond.
• Property type: This has less to do with mortgage rates than your personal situation, but it bears mentioning. You’ll get a lower rate on the mortgage for your main home that you’re going to be living in than you would on a vacation home or rental property because if you had to make the payment on one, you would prioritize that one.
• Personal finances: Beyond the property type, your personal mortgage rate is more influenced by factors including your credit score and the size of your down payment or the amount of existing equity you have. In both cases, the higher these numbers are, the less of a risk you represent for a lender.

Tips For Buyers When Mortgage Rate Forecasts Predict Rising Rates

There are several ways to combat rising mortgage rates. In fact, the tips we’ll give are good to remember in any market.

Make A Larger Down Payment

One of the best ways to make sure you’re getting the lowest mortgage rate possible is to make a larger down payment. Simply put, the higher your down payment, the less you have to borrow. This makes you a better risk for lenders.

Additionally, the higher your down payment, the lower your monthly payment no matter the interest rate. Further, if you make a down payment of 20% or more on a conventional loan, you’ll avoid having to pay for mortgage insurance.

Increase Your Credit Score

Along with your down payment, the other huge factor impacting the interest rate someone gets is their credit score. It’s a proxy for your past borrowing history that lenders can use to evaluate risk, so the higher the better.

If you want to improve your score, make sure to check your credit report regularly for errors and things you don’t recognize. Make a habit of paying on time and keep your credit utilization on revolving accounts to no more than 30% of the balance. Don’t take out credit you don’t need because it lowers your score based on the idea that you could be overextending yourself.

Get Quotes From Multiple Lenders

People shop many dealers when it’s time to buy a car. Similarly, shopping with multiple lenders for a mortgage can help you make sure you get the best deal. However, follow these tips to make sure you’re not fooled into a bad deal.

Pay attention to not only the base interest rate, but also the annual percentage rate (APR). The APR will always be higher, but the bigger the difference between the APR and the base rate, the higher the closing costs and fees associated with the loan are. Watch out for other hidden costs like prepayment penalties and fees to make a payment by mail or over the phone.

Tips For Buyers When Forecasts Predict Lower Mortgage Rates

If you’re thinking lower rates are coming, here are some things you might think about. Again, these are a good idea regardless of the market you find yourself in.

Keep An Eye On Forecasts

You should keep track of the forecasts of the experts if you’re in the market for a mortgage soon for a couple of reasons. For starters, forecasts change, so it’s important to stay up to date. Also, forecasts enable the market to get ahead of the future moves of the Fed, so waiting for rate changes may not benefit you.

Why is the market so far ahead? After your mortgage is closed, your lender usually doesn’t sell the mortgage to the investor whose guidelines underlie the loan until at least 60 days later when it’s packaged in a bond with other mortgages. Therefore, the rates you can lock today are based on what investors think a fair return will be if they were to buy it several months from now.

Study Other Market Conditions

Of course, mortgage rates aren’t the only factor impacting affordability. Home purchases are also impacted heavily by the amount of inventory in the area you’re looking to buy relative to demand. Lower mortgage rates by themselves don’t guarantee more supply.

In fact, if supply remains the same, sellers may opt to try for higher prices knowing that lower rates mean buyers have more room in their budget. To really increase your purchasing power, it helps for there to be a downturn in mortgage rates along with an uptick in supply.

Get Preapproved For A Mortgage

Regardless of market conditions, you should always get preapproved for a mortgage. This gives you a solid idea of what the top end of your budget is so you know how much you can afford before beginning the shopping process.

Also thought of as an initial mortgage approval, the preapproval process involves a lender pulling your credit to get an idea of your debts as well as verifying your income and assets. Many sellers and their real estate agents won’t even accept offers not backed by a preapproval.

The Bottom Line

No one can know the future, but paying attention to mortgage interest rate forecasts can help you know what to expect when you’re getting ready to buy or refinance a home. While there are no sure bets, major industry players expect mortgage rates to fall in 2025 in part based on the lowering of the target for the federal funds rate.

Putting forecasts aside, there are things you can do to better prepare in any market. These include keeping an eye on market trends, getting preapproved, making the largest down payment possible and boosting your credit score. If you think you’re ready to move forward, start the mortgage approval process.