If you’ve been keeping an eye on mortgage rates lately, you’ve probably noticed that they’ve been on a bit of a rollercoaster. After hitting record lows during the pandemic, rates shot up since 2022, leaving many homebuyers wondering: When will things calm down?

Well, here’s the good news: it looks like relief may finally be on the horizon. Everyone take a big breath! Let’s break down what the experts are saying about mortgage interest rate forecasts heading into 2025 and 2026, and what that could mean for you.

Quick Recap: Why Did Rates Go Up So Much?

Simple answer: INFLATION!

When inflation began rapidly climbing back in 2021 and 2022, the Federal Reserve stepped in and raised interest rates to slow it down. That included the federal funds rate, which influences borrowing costs across the board—including mortgages.

By mid-to-late 2023, mortgage rates climbed past 7% for the first time in decades. It was a major shift from the ultra-low 2–3% rates many homeowners locked in during 2020 and 2021.

So… When Are Rates Expected to Drop?

According to economists and market analysts, we’re likely to see gradual declines in mortgage interest rates throughout 2025. But don’t expect them to fall back to those pandemic-era lows. Here’s a look at the forecast:

• Forbes suggests that while rates are likely to decrease as inflation cools and the Fed eventually eases up on rate hikes, any drop will likely be slow and modest. They expect average 30-year fixed mortgage rates to settle somewhere between 6% and 6.5% in 2025.
• Morgan Stanley has a slightly more optimistic view. They predict rates could dip into the low 6% or even high 5% range by the end of 2025—if inflation continues to trend downward and the economy avoids major surprises.
• LendingTree echoes a similar sentiment. Their analysts believe that once the Fed begins cutting rates (possibly in the second half of 2024), mortgage rates will start to ease—but probably won’t hit pre-2022 levels again for quite a while.
  
  

What’s Driving the Forecast?

Here are some of the key factors shaping the direction of mortgage rates:

1. Federal Reserve Policy
   The Fed doesn’t set mortgage rates directly, but its moves influence them big time. 
2. Inflation Trends
   Rates will likely fall faster if inflation continues to cool. However, if inflation proves sticky or makes a comeback, that could keep rates higher for longer.
3. Economic Growth
   A slowing economy or potential recession could also put downward pressure on rates, as investors flock to safer assets like bonds—which mortgage rates tend to follow.
4. Global Factors
   Geopolitical tensions, oil prices, and even supply chain issues can all influence inflation and, by extension, interest rates. It’s a complicated puzzle with many moving parts.
   
   

What Does This Mean for Homebuyers and Homeowners?

If you’re looking to buy a home, the coming year might offer slightly better mortgage rates than 2023. But waiting too long could also mean missing out on available inventory or dealing with rising home prices if demand spikes again.

For current homeowners, especially those with rates over 6.5%, refinancing may start to make sense again this 2025, especially if your rates fall into the 5% range. That said, keep an eye on your credit, income, and home equity so you’re ready when the time is right!

And what if you’ve locked in a low rate a few years ago? You’re probably better off sticking with it—no matter how enticing future offers may sound.

To Summarize 

Mortgage rates are slowly heading in the right direction—but this is going to be a marathon, not a sprint. While it’s unlikely we’ll see the super-low rates of 2020 again anytime soon, there’s reason to be hopeful that the worst is behind us.

If you're planning to buy, sell, or refinance, stay informed, watch the market, and talk to a trusted lender or financial advisor to find the best path forward for your situation. Our team of experts at BuiltStrongUSA will be happy to discuss Mortgage Refinancing options. We can help you in deciding which direction to go with your mortgage. Don’t wait to get the answers you need, apply for Refinancing options here.