Mortgage Brokers Share 7 (Mostly) Hopeful Interest Rate Predictions for 2025

After hitting a high of 7.79% in October 2023, average interest rates for 30-year home loans have slightly declined. But unfortunately, rates haven't fallen off the cliff that many prospective homebuyers hoped for.

Additionally, homeowners hoping to make money moves through a refinance haven't seen rates to celebrate yet. Although rates have leveled back out under 7%, there's much uncertainty in the economic outlook for 2025.

Here, we've rounded up a few expert takes and predictions on what mortgage rates might do in 2025 — critical information for anyone planning to buy, sell, or refinance a home.

The Federal Reserve sets the federal funds rates, which impacts mortgage rates. Generally, when the federal funds rate declines, so do mortgage rates.

After pushing the federal funds rate higher to tame inflation, the Fed has started to shift toward lowering interest rates. Many experts expect the Fed to continue shifting rates lower in 2025, which could lead to lower interest rates for homebuyers.

"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," Ralph McLaughlin, a senior economist at Realtor.com, said in a press statement.

Although a lower federal funds rate could mean lower rates, most experts don't anticipate mortgage rates dropping to the lows seen during 2021. Mortgage rates around 3% are an opportunity that doesn't come along daily, so most agree it's unlikely we'll see rates that low soon.

The Mortgage Brokers Association forecasts that mortgage rates will reach an average of 5.9% by the end of 2025. Of course, dropping rates is welcome news for most. However, many prospective buyers may be disappointed that rates won't fall into the 3% range again.

With the Fed pulling back interest rates, the hope is that rates stabilize at moderate levels. More moderate interest rates could make homebuying more affordable than it has been lately, with rates creeping above the 7% mark.

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Interest rates might come down. However, housing supply still significantly impacts the housing market, especially in the U.S., where there is a shortage of units. Although more homes are being built, the pace might need to be faster to alleviate demand.

"The simple fact is there are not enough homes in this country, and that's pushing homeownership out of reach for too many families," said Orphe Divounguy, senior economist at Zillow.

Of course, supply and demand varies from market to market. However, a general shortage of housing inventory may continue to drive demand. Higher demand could push rates higher than expected due to the sheer number of buyers looking to purchase a home.

The mortgage rate market involves many factors, some of which create volatility. Many experts warn that interest rates might be bumpy in the coming year due to global economic factors, including geopolitical events and changes in government policies.

Although many experts are optimistic that lower mortgage rates are on the horizon, there are no guarantees. It's possible we won't see significantly lower interest rates. Only time will tell how the market plays out.

If interest rates decrease slightly, some experts foresee lower rates making the housing market more competitive for homebuyers. After all, a mortgage rate in the 5% range might save the average homebuyer hundreds of dollars per month.

"There has been growth in purchase applications for both new and existing homes, with application levels above last year's pace," explained Joel Kan, the vice president and deputy chief economist for the Mortgage Bankers Association.

"Mortgage rates are lower than they were a year ago, and for-sale inventory has started to grow somewhat, which is helping to ease price pressures in many markets. It is also encouraging that an increasing share of first-time homebuyers have turned to newly built homes as an option, given the lack of previously owned starter homes on the market."

Interest rates can greatly impact your costs if you want to purchase a home. Of course, higher interest rates result in more borrowing costs. However, as interest rates fall, other challenges, like an influx of buyers competing over a smaller housing supply, may come into play.

The situation may be especially precarious if you are a homeowner looking to refinance your mortgage. It might be a while before you see rates worth refinancing if you are waiting to refinance with a lower rate to lock in a lower payment. In the meantime, consider these strategies to help pay for your mortgage.