Mortgage rates were on a downward course—until they weren’t. After falling in September to a 2024 low of 6.08%, the average rate on the benchmark 30-year mortgage made an about-face and has mostly risen ever since.
By the final week of November, the 30-year fixed rate climbed 73 basis points to 6.81%, according to Freddie Mac data. A basis point is one one-hundredth of a percentage point.
Experts previously anticipated mortgage rates to close in on 6% by year-end and to continue descending from there, especially given the two cuts to the federal funds rate since September. However, economic uncertainty, fueled by inflation concerns and anticipation of the incoming administration’s policies, continues to put upward pressure on mortgage rates.
While the Fed has signaled plans for one more rate cut for 2024, housing market experts expect mortgage rates to remain stubbornly high and only gradually ease as we move into 2025.
Here’s what to know.
Fed Cuts Policy Rate Again: What This Means for Mortgage Rates and Home Affordability
In a widely expected move, the Federal Open Market Committee (FOMC) voted unanimously to cut its key interest rate by 25 basis points at its November two-day meeting. This decision follows the more sizable 50-basis point cut the Fed made at its September two-day policy meeting, which ended two and a half years of hikes and pauses.
The federal funds rate is the overnight borrowing rate for commercial banks and credit unions and indirectly influences mortgage rates. One basis point equals one one-hundredth of a percentage point. After holding rates between 5.25% and 5.5% for nearly 14 months—the highest level in 23 years—this latest cut lowers the Fed’s benchmark interest rate range to 4.50% to 4.75%.
As the Fed began raising rates in March 2022 in an effort to bring runaway inflation down to a 2% target, the housing market felt the squeeze. Mortgage rates took off, surging last October to their highest levels in decades, while home prices hit historic peaks amid high demand and scant inventory, shutting the door on many would-be buyers.
Will Mortgage Rates Drop Soon?
Despite this latest cut, housing experts say don’t expect mortgage rates to drop significantly in the near future. Indeed, mortgage rates steadily marched upward following the September 50-basis point cut, with the 30-year-fixed mortgage rate now hovering in the upper 6% range.
“Home buyers hoping for another dip in mortgage rates by the end of the year will likely be disappointed, but the good news is we still expect the long-run trend in rates to be downward as the fight against pandemic-induced inflation comes to an end,” said Ralph McLaughlin, senior economist at Realtor.com, in a press statement.
Samir Dedhia, CEO of One Real Mortgage, is also taking the long view.
“Although one rate cut may have a limited effect, consecutive cuts could improve affordability and drive more market activity, particularly if the Federal Reserve indicates a commitment to maintaining lower rates over a longer period," Dedhia said in an emailed statement.
Should Buyers Wait for Rates To Fall?
Some experts caution that waiting for mortgage rates to drop further can be a risky strategy.
“For aspiring homebuyers, the right time to buy really depends on your individual goals and financial situation,” says Fred Bolstad, head of retail home lending at U.S. Bank. “If you are in the financial position to afford the payments on a home you find and love, there is no need to wait.”
What’s Next?
The next two-day FOMC meeting is set for December 17 and 18. Most experts expect the Fed to cut rates by another 25 basis points. The committee will also release its latest quarterly summary of economic projections, which project economic and employment data as well as policy rates for both the near and long term.
Meanwhile, housing market analysts are closely monitoring the incoming administration’s potential economic policies. Based on the timing of their implementation and effects on inflation and employment, these could prompt the FOMC to reconsider its rate strategies.
Mortgage Rate Predictions for 2024 and 2025
Here’s how some experts predict market conditions will affect the average 30-year, fixed-rate mortgage in Q4 2024 and beyond:
LoanDepot: Mortgage rates could remain well above 6% through mid-2025
“While it’s really too soon to predict where mortgage rates will be in 2025, we currently anticipate they could dip into the mid-6% range by the middle of the year, ” says Jeff DerGurahian, chief investment officer and head economist at loanDepot. “If inflation remains subdued and the labor market weakens, the Fed could have room for further cuts, potentially pulling mortgage rates down gradually.”
National Association of Home Builders (NAHB): 30-year fixed rate to end 2024 in mid-6% range
In her report highlighting key data from the November Macro Economic Update, Fan-Yu Kuo, chief economist at NAHB, stated that the trade association expects the 30-year fixed rate to land at around 6.5% at the end of 2024 and drop below 6% by the end of 2025.
Fannie Mae: Rates will average 6.6% in Q4 and then descend gradually
Fannie Mae revised its mortgage rate forecast for 2024, now forecasting the 30-year fixed mortgage rate to average 6.6% in the final quarter, an upward revision from its previous forecast of 6%. It expects the average rate in the first quarter of 2025 to reach 6.5%, followed by an average rate of 6.4% in the second quarter.
Freddie Mac: Expect rate volatility through the end of 2024
According to its November Economic, Housing and Mortgage Market Outlook, Freddie Mac expects mortgage rates to stay elevated and volatile for the remainder of the year and gradually ease throughout 2025.
Mortgage Bankers Association (MBA): Rates will average 6.6% in Q4
The MBA is projecting the 30-year fixed-rate mortgage to average 6.6% in the fourth quarter of 2024, according to the real estate finance association’s November Mortgage Finance Forecast. MBA economists anticipate rates to stay flat in the first quarter of 2025 and tick down to 6.5% in the second quarter.
Bluebird Lending: Rates will decline minimally
“We saw a slight decrease in rates leading up to the Fed rate cut,” says Jess Schulman, president and COO at Bluebird Lending. “It is possible to see further reductions, but not enough to be meaningful in the short term. If borrowers see an opportunity to purchase, they should seize it and consider a refinance in the long-term.”
RE/MAX: Rates will remain at elevated levels until early 2025
“Predicting mortgage rates is always challenging, but we’re expecting rates to stay close to where they are—in the range of 6.7%—for the rest of the year and into early 2025,” says Amy Lessinger, president at RE/MAX LLC. “At some point next year, experts believe they’ll start gradually trending downward. It’s just a matter of when the shift begins to take shape.”
New Homes Mate: Mortgage rate movement will depend on Fed, economy
“The Fed’s upcoming meetings and potential rate cuts will be crucial—even a 25 basis point cut could spark significant mortgage rate movement,” said Dan Hnatkovskyy, economist, housing market expert and CEO of NewHomesMate. “If we see further disinflation and rising unemployment, it could accelerate rate cuts and lower mortgage rates. However, resilient economic data could keep rates elevated.”
First American Financial Corporation
“An average of several industry forecasts projects that mortgage rates will end the year lower, at 6.2%. If mortgage rates fall to 6.2% in December and house price growth remains stable at approximately 3.8%, we expect affordability to improve by nearly 6% relative to one year ago,“ Mark Fleming, chief economist at First American Financial Corporation, explained in a recent report.
Current Mortgage Rate Trends
Mortgage rates have been back on the rise since October, even though most analysts predicted they would recede by the end of the year to within 6%—but the end of 2024 is fast approaching and rates aren’t even close.
Yet, there is a silver lining. Despite hovering well above 6%, rates remain below the spring 2024 highs, which exceeded 7%.
Here’s how rates have trended over the past five years for 15- and 30-year mortgages.
When Will Be the Best Time To Refinance in 2025?
To evaluate whether or not a refinance would be realistic, you want to evaluate your reasoning. If the goal is debt consolidation, it could make sense, but if you're trying to reduce the payment, it could be more challenging to achieve in the current higher-rate environment. The only way to know for sure is to speak with a mortgage lender to explore your options.
— Jenn Bourque, loan officer at Empire Home Loans and Forbes Advisor advisory board member
Whether 2025 emerges as an ideal year to refinance depends on several factors, including the number of times the Fed cuts interest rates and by how much. The mortgage rate you got when you financed your home is another major factor.
Refinance rates tend to be higher than purchase rates, but the two typically move in tandem, suggesting refinance activity could gain greater traction if rates continue their downward trend.
Should You Refinance If You Already Have a Good Rate?
Over 40% of U.S. mortgages were originated in 2020 and 2021, when interest rates were at record lows. There were also some 14 million mortgage refinances during the same time. If you were lucky enough to secure a mortgage during that time, the remainder of 2024 and into the early months of 2025 may not be the ideal time to refinance.
“Right now, roughly two-thirds of Americans with a mortgage carry an interest rate below 4%,” DerGurahian tells Forbes Advisor. “Even with one or two possible rate cuts from the Fed in the second half of this year, rates will not drop below that point, making a refinance a tough sell.”
Should You Refinance If You Have a High Rate?
However, DerGurahian notes that refinancing before the end of 2024 could make sense for some.
“If you're holding a mortgage rate around or above 7%, you could see significant savings by refinancing this year,” he says. “However, if your rate is 6.5% or lower, it might make sense to wait until 2025, as we're expecting rates to drop to the mid-5% range by midyear.”
Refinance activity in November decreased weekly as rates surged, though activity remained higher than a year ago. A final Fed rate cut in 2024 and more in 2025 could help to indirectly put some downward pressure on mortgage rates, prompting a rebound in weekly refinance volume.
Here are recent trends in refinance activity, according to the MBA’s Weekly Mortgage Applications Survey.
| REFINANCE ACTIVITY | WEEKLY | ANNUALLY |
|---|---|---|
| Week ending November 1 | -19% | +48% |
| Week ending November 8 | -2% | +43% |
| Week ending November 15 | -2% | +43% |
| Week ending November 22 | -3% | +119% |
In its November Economic, Housing and Mortgage Market Outlook, Freddie Mac is predicting a decline in mortgage rates in 2025 to boost refinance activity. The report states lower home price growth will also help improve the mortgage market, leading to a modest increase in overall origination volumes.
How To Shop for the Best Mortgage Rate
Rather than waiting it out for a rate that they like better, hopeful homebuyers should assess their personal financial situation—if the house is right for them, and the upfront and monthly payments are affordable, it could be the right chance to make a move.
- Matt Vernon, head of retail lending, Bank of America
Getting an optimal rate on a home loan can save you a significant amount of money over time. Here are some tips that can help you get the best rate possible for your situation:
- Keep your eye on rates. Mortgage rates are constantly changing. Keeping a close watch will make it easier to find and lock in a better rate.
- Check your credit. When you apply for a mortgage, the lender will review your credit to determine your creditworthiness as well as your interest rate. In general, the higher your credit score, the better your rate will be. To get an idea of where you stand, check your credit before you apply and dispute any errors with the appropriate credit bureau to potentially boost your score.
- Shop around and compare lenders. Consider options from as many mortgage lenders as possible to find the best deal for you. Prospective buyers have saved more than $1,500 over a loan’s term by getting two quotes from lenders and saved roughly $3,000 when they sought five quotes, according to Freddie Mac.
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Frequently Asked Questions (FAQs)
What’s the difference between mortgage interest rates and APR?
While the terms “interest rate” and “annual percentage rate (APR)” are often used interchangeably, they’re not the same. A mortgage interest rate reflects the cost you pay to the lender in return for borrowing money on top of your loan amount.
The APR on a mortgage, on the other hand, includes the interest and any other fees or penalties associated with the loan. Because of this, the APR can give you a better idea of how much you’ll pay on a mortgage compared to just the interest rate.
What is a mortgage rate lock?
A mortgage rate lock is a guarantee that the rate you’re offered in your mortgage application acceptance is the one you will eventually pay, assuming you close within a normal period of time and make no changes to your application.
In a period of rising or volatile interest rates—like the present one—it may be wise to lock in a rate that seems affordable for you.
When should I lock my mortgage rate?
It can be tricky to time any market, and mortgage rates are no exception. If conditions are choppy and interest rates are likely to rise, it may be smart to lock in a rate that works with your budget and seems fair to you.
Be sure to ask your lender about the consequences of not closing within the timeframe specified in a rate lock agreement and also about what could happen if rates fall after you lock in a rate.
How do you calculate your mortgage payment?
Depending on your loan type and other factors, the components of a monthly payment can vary but typically include:
- Principal. The amount of funds you borrow from a lender for your mortgage.
- Interest. The cost the lender charges you for borrowing the funds.
- Property taxes. Payments are based on local property tax rates.
- Homeowners insurance. A separate policy for insurance coverage based on the value of your home and property.
- Private mortgage insurance (PMI). Typically only applies if you take out a conventional mortgage with a down payment below 20% of the purchase price.
- Homeowners association (HOA) or condominium fees. Only applies if your property is part of an HOA or you own a condominium.
- Escrow. An account reserved for property taxes, homeowners insurance and mortgage insurance, managed by the lender.
- Additional costs. Examples of potential additional costs include home warranties and flood insurance.
Along with the above information, plug in the home price, down payment, interest rate and loan term into a mortgage calculator to determine the most accurate monthly mortgage payment estimate.
What is the mortgage rate forecast for the next five years?
Given the many factors directly and indirectly impact mortgage rates, predicting where rates will go in the years ahead is tricky.
“Five-year mortgage rates is a very hard trend to predict as there are a lot of variables that could impact the result,” says Schulman. “In the next 18 to 24 months, we see further reductions in rates so long as the economy continues to improve.”
