You shouldn’t expect rates to drop much this year.
The average rate for a 30-year mortgage in 2024 was 6.85%. While rates never hit the all-time highs seen in the 1980s, they were closer to the rates experienced shortly before the Great Recession.
Understanding what a typical mortgage interest rate might be in 2025 is crucial for prospective homebuyers who are ready to purchase.
As a personal finance expert, I’ve outlined what potential buyers worried about mortgage interest rates in 2025 can expect to see.
Don’t Expect Rates to Hit Record Lows
For those who remember the record lows borrowers received in 2021, don’t hold your breath. Unless there’s a massive recession, pandemic or other catastrophic event, rates are unlikely to reach those lows again.
If you want to buy a home soon, you may have to accept a 6.5% interest rate (or thereabouts).
Expect a Small Shift in Rates
According to Fannie Mae and the Mortgage Bankers Association, rates will lower in 2025 – but not by much.
Here’s what they predict for 30-year terms:
| Association | 2025 Q1 | 2025 Q2 | 2025 Q3 | 2025 Q4 |
| Fannie Mae | 6.6% | 6.4% | 6.3% | 6.2% |
| Mortgage Bankers Association | 6.6% | 6.5% | 6.4% | 6.4% |
While this looks like a negligible decrease, it can still result in huge savings over time. Here’s how that might affect your monthly payment and total interest paid.
If you buy a $400,000 home with a 5% down payment and a 30-year term at 6.6%, you’ll make a $2,426.90 monthly payment. But if rates dip to 6.2%, your monthly payment will drop by almost $100. That’s a difference of about $35,000 over 30 years.
Expect Some Relief for Buyers in 2025
Even though mortgage interest rates will remain relatively unchanged in 2025, some experts believe that stagnating rates will still benefit prospective buyers.
When rates stay about the same, homes often stay on the market longer. In 2024, about 54% of homes sat on the market for 60 days or more, more than a 50% increase from the prior year. When homes are on the market longer, sellers might be more motivated to lower prices. This can create a more competitive market, which is good for buyers.
Don’t Rely on the Federal Reserve to Lower Rates
Most buyers assume that the Federal Reserve is directly responsible for mortgage interest rates. However, 2024 showed us that this wasn’t necessarily true.
Case in point: the Federal Reserve lowered interest rates three times in 2024. However, home rates didn’t necessarily correspond.
That’s because mortgage interest rates are predicated on other factors beyond just what the Fed does. Housing prices, inventory, prices for other goods and additional economic factors can also affect mortgage rates.
“The inflation rate remained elevated, climbing to 2.7% last month, above the Fed’s 2% target,” said financial advisor Said Israilov. “The persistent elevated level of inflation will likely prevent the Fed from making more than two rate cuts this year.”
Also, both interest rates and home values are still relatively high, which means many homes are simply out of reach for buyers. Some buyers may wait for rates to drop significantly before investing in a home.
“Long-term rates (mortgage rates) will not go down until institutional investors (who buy mortgage-backed securities (MBSs)) are convinced that inflation will remain under control,” Fleming said. “I do not see that happening in 2025.”
Expect Rate Cuts to Happen Later
It hasn’t been that long since the Federal Reserve last cut rates, and they may be slower to do so in 2025.
“With 30-year fixed mortgage interest rates hovering around 7% today, I expect they will come down a tad bit during the second half of this year,” Israilov said.
Helpful Tips
If you want to buy a home but are worried about mortgage rates, there are some things you can do to get a better rate.
Buy a Lower Rate
When you take out a mortgage, the lender will often give you the option to buy a point worth a 0.25% lower interest rate. Each point will cost about 1% of your mortgage loan amount. You’ll have to pay this upfront fee when you close your mortgage.
If you’re planning on staying in the home for a long time – think decades, not years – buying points might be a worthwhile investment.
“Rules of thumb are rarely a good way to evaluate options, but if a homebuyer expects to keep the loan they are using to purchase the property more than about two years, they absolutely should look into paying points to buy down the interest rate, and find a loan officer that knows how to do the math,” Fleming said.
However, if you’re only planning to live in your home for a few years, a lower interest rate might not be worth the cost.
Use a Variable Rate Loan
Adjustable-rate mortgages (ARMs) are a popular option for borrowers who plan to get their feet wet in the housing market before buying a bigger home. An ARM starts with a variable-rate loan before switching to a fixed-rate loan.
The variable-rate portion often includes a lower rate, better than what you’d find with a traditional fixed-rate loan.
And while an ARM might seem risky to some borrowers, it’s less of a gamble when rates start trending downward. ARMs are especially popular with those buying a starter home who plan to upgrade in a few years.
Why You Should Trust Us
I’ve worked as a personal finance writer for more than 10 years. I’ve covered mortgage-related topics, as well as other personal finance issues for reputable publications, like Business Insider, Forbes Advisor and Bankrate.
You can also trust the expert advice included in this piece. Casey Fleming is a long-time mortgage broker who has written several books on the subject. Financial planner Saïd Israilov is a Certified Financial Planner and a fiduciary, which means he meets the highest standards among financial planners and advisors.
Sources
- https://tradingeconomics.com/united-states/30-year-mortgage-rate#
- https://www.housingwire.com/articles/mortgage-rates-mortgage-bankers-association-forecast-november-2024/
- https://www.cnbc.com/2024/12/31/housing-market-supply-stale.html
- https://www.nbcnews.com/business/economy/federal-reserve-interest-rate-cut-december-2024-much-economy-rcna184586
- https://www.israilovfinancial.com/said-israilov
About Zina Kumok
Zina Kumok is a freelance writer, editor and speaker specializing in personal finance. A former reporter, she has covered murder trials, the Final Four, and everything in between. She has been featured in U.S. News & World Report, Forbes Advisor, and Bankrate. Read about how she paid off $28,000 worth of student loans in three years at Conscious Coins.