After hitting a peak of 7.04% in January 2025, mortgage rates have retreated, but the decline has been sluggish, as rates remain trapped in a narrow mid-6% band.
The average 30-year fixed mortgage rate dropped 13 basis points to start March and then stalled, finishing out the month two basis points higher from where it started, at 6.65%, according to Freddie Mac data. One basis point is one one-hundredth of a percentage point.
Meanwhile, upticks in inflation and unemployment and worries surrounding the potential Trump administration’s tariff policies may continue to fuel mortgage rate volatility. Consequently, housing market experts expect mortgage rates to remain stubbornly high, only gradually easing as we move through 2025.
Fed Votes To Hold Rates Steady Again Amid Economic Uncertainty, Tariffs
In a widely anticipated move, the Federal Open Market Committee (FOMC)—the Federal Reserve panel charged with setting interest rates—voted unanimously to keep the federal funds rate unchanged at its March two-day meeting. The federal funds rate is the overnight borrowing rate for commercial banks and credit unions and indirectly influences mortgage rates.
After holding rates between 5.25% and 5.5% between July 2023 and August 2024, the Fed implemented three rate cuts between September and December 2024, totaling one percentage point.
The March pause keeps the target benchmark range at 4.25% to 4.5% and marks the second consecutive meeting this year where policymakers voted to keep the current rate.
The newest Fed economic projections maintain the two rate cuts in 2025 that policymakers projected in the December forecast, making the expected range for the borrowing rate between 3.75% and 4% by the end of the year.
While Fed Chair Jerome Powell pointed out at a post-meeting press conference that the economy remains strong, the Fed projections predict the implementation of aggressive tariffs policies to impede economic growth and drive modest inflation in 2025. Fed officials also project an uptick in the unemployment rate by the end of the year
In the meantime, Powell restated that the data-dependent Fed will continue to maintain a watchful eye on economic and employment readings to inform its decisions. In other words, what happens next is anyone’s guess.
What This Means for Mortgage Rates and Home Affordability
As the Fed began raising rates in March 2022 to wrestle runaway inflation down to its 2% target, the housing market felt the squeeze. Mortgage rates surged to decades-high levels as home prices hit historic peaks amid fierce demand and scant inventory, shutting the door on many would-be buyers.
Though multiple factors impact mortgage rate movements, industry experts say affordability could remain a challenge for many this year. This could be especially true if potential tariffs impact new home construction by pushing up costs on imported building material costs, and, subsequently, new home prices.
Will Mortgage Rates Drop in 2025?
Powell said that policymakers were watching declining customer sentiment and slower economic growth to help inform its next steps regarding rates.
If policymakers see negative signs in the data, that could prompt a cut to prevent an economic downturn. Another cut could trigger an indirect ripple effect that drives mortgage rates lower.
“Lower rates are good for home buyers who have been waiting for mortgage rates to come down,” said Lisa Sturtevant, chief economist at BrightMLS, in an emailed statement. “But if rates come down because the labor market is weaker and people are worried about their jobs, those lower mortgage rates won’t be able to bring as many homebuyers into the market.”
Fed rate decisions aside, experts only anticipate a small drop in mortgage rates this year.
“Looking ahead, mortgage rates could fluctuate in either direction, depending on the Fed's actions,” said Kara Ng, senior economist at Zillow Home Loans, in a press statement. “The Fed fights hotter inflation with higher rates and backstops cooler labor with lower rates—two divergent paths. Mortgage rates are not guaranteed to fall much further.”
Even so, any downward movement in mortgage rates helps with affordability.
"By year-end, mortgage rates are projected to settle in the mid-6% range, offering some relief to prospective buyers,” said Sam Williamson, senior economist at First American, 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 home buyers, 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.”
As it turns out, buyers who anticipated a mortgage rate drop last fall when the Fed began rate cuts didn’t see the results they expected. This outcome served as a reminder that Federal Reserve rate decisions don’t control mortgage rates.
“Note that when the Federal Reserve cut interest rates in September, again in November and December, mortgage rates actually increased,” said Lawrence Yun, chief economist at NAR, pointed out at the trade association’s real estate forecast summit in March. “So people who were waiting to buy a home from the Federal Reserve decision—it completely backfired.”
What’s Next?
The next two-day FOMC meeting is set for May 6 and 7. Odds are high for another pause in May as the Fed takes more time to review incoming data, with a higher percentage of Fed watchers predicting that policymakers will make a cut when the group convenes for its June meeting.
The rate you’re offered on a mortgage will also depend on the lender you work with, its business costs and your financial profile. Ultimately, if you’re looking for a home loan, compare your options with multiple mortgage lenders to find a good deal.
Mortgage Rate Predictions for 2025
Here’s how some experts predict market conditions will affect the average 30-year, fixed-rate mortgage in the second quarter of 2025 and beyond.
National Association of Home Builders (NAHB): 30-year fixed rate will decline at a slower pace through 2025
In her report highlighting key data from the February Macro Economic Outlook, Na Zhao, economist at NAHB Economist, predicts, “While mortgage rates are expected to decline, the pace will likely be slower than previously anticipated, with volatility ahead. Market rates are projected to fall below 6% by the end of 2025.”
National Association of Realtors: Mortgage Rates will average 6.4% in 2025 and 6.1% in 2026
“So mortgage rates can go down with a Fed rate cut if inflation is under control,” said Lawrence Yun. “But it’s not going to go down to 4% mortgage rate conditions because we have a huge national debt… It cannot go to 4%, and it cannot go to 5%, but it can go to 6% with the Federal Reserve rate cuts and calmer inflation.”
Fannie Mae: Revises mortgage rate forecast downward despite uncertainty
Per Fannie Mae's March Economic Developments Report: “Our mortgage rate forecast has been revised downward given the recent movements in the mortgage rate. We now expect the 30-year, fixed-rate mortgage to average 6.5% in 2025 and 6.2% in 2026 (both down three-tenths from our February forecast). However, there is an unusually high degree of uncertainty regarding the path for growth and inflation during the rest of 2025, which adds risk to our interest rate forecasts.
Freddie Mac: Expect rates to remain high in 2025
According to its January Economic, Housing and Mortgage Market Outlook, Freddie Mac expects mortgage rates to stay “higher for longer” this year, with the slightly lower rates compared to 2024 leading to a boost in refinance volume.
Mortgage Bankers Association (MBA): Rates will stay in the high 6% range in the first half of 2025
According to the MBA March Mortgage Finance Forecast, the real estate finance association projects the 30-year, fixed-rate mortgage to average 6.8% in the second quarter of 2025, edging down to 6.7% in the third quarter and ending the year at 6.5%.
BOK Financial: Expecting rates to stay high in the coming months
“Based on recent inflation concerns across the economy, the Federal Reserve does not sound interested in rate cuts anytime soon,” says Michael Merritt, senior vice president of customer care and default mortgage servicing at BOK Financial and Forbes Advisor advisory board member. “As such, I expect rates to stay in the [high-6%-to-low-7%] range over the next few months —a similar range they have moved over the last month.”
Jome: Mortgage rate movement will depend on Fed, economy
“When it comes to mortgage rates and inflation, beyond the usual impact of monetary policy and natural inflation trends, we may see additional inflationary pressure from potential tariffs on major trading partners,” said Dan Hnatkovskyy, economist, housing market expert and CEO of Jome, a real estate company specializing in new construction home transactions. “This type of inflation could likely cause the Fed to pause rate cuts. … [B]ased on current trends and historical patterns, it seems unlikely that we’ll see significant declines in Fed rates or mortgage rates this year, given the added inflationary pressures.”
First American Financial Corporation: Elevated rates are here to stay
“While the Fed is still expected to cut rates later this year to move toward a more neutral stance, their cautious approach will likely prevent any significant mortgage rate declines,” says Odeta Kushi, deputy chief economist at First American. “If inflation eases and the Fed follows through on rate cuts, mortgage rates could gradually retreat, but we expect them to remain above 6.5%. A slowdown in the labor market or broader economy could further accelerate that decline, but for now, elevated rates are here to stay.”
Bright MLS: Mortgage rates not expected to drop significantly in the coming months
“Mortgage rates are not expected to come down significantly in the first half of the year, but slight dips could prompt some eager buyers to act [and take] advantage of the growing number of homes on the market,” said Lisa Sturtevant, chief economist at Bright MLS, in an emailed statement.
J.P. Morgan: Mortgage rates will remain above 6.5% in 2025
According to financial services firm J.P. Morgan’s February outlook for the U.S. housing market in 2025, “The higher-for-longer interest rate backdrop is here to stay, with mortgage rates expected to ease only slightly to 6.7% by the year end.”
Wells Fargo: Elevated mortgage rates to remain
Wells Fargo expects the mortgage spread between the 10-year treasury note yield and 30-year fixed rate mortgage to compress by the end of the year. “Accordingly, we look for the 30-year fixed-rate mortgage to recede from a bit under 7% at present to roughly 6.50% by the end of 2025.”
Current Mortgage Rate Trends
Many industry experts forecasted this time last year that rates would be closer to 6% by the end of 2024 and drift below this threshold by the first or second quarter of 2025.
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 initially 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 period, 2025 may not be the ideal time to refinance, considering mortgage rates could stay well above 6% in the coming months.
“Most homeowners refinance to reduce their monthly mortgage payments with a lower interest rate,” wrote Archana Pradhan, an economist at CoreLogic, in a recent report. Pradhan adds that only about 12% of mortgage loans have a rate of 6% or more, many of which were originated in 2023 and 2024.
Recent Refinance Trends
Recent refinance activity started off 2025 strong with week-over-week gains, but sagged in the second half of March. However, year-over-year activity surged.
If the Fed postpones rate cuts again at its May meeting, as many expect, this could indirectly maintain upward pressure on mortgage rates, prompting reduced refinance volume.
Here are recent trends in refinance activity, according to the MBA’s Weekly Mortgage Applications Survey.
| 2025 REFINANCE ACTIVITY | WEEKLY | ANNUALLY |
|---|---|---|
| Week ending February 28 | +37%
| +83 %
|
| Week ending March 7
| +16%
| +90%
|
| Week ending March 14 | -13%
| +70%
|
| Week ending March 21
| -5% | +63% |
In its March Economic Developments Report, Fannie Mae upgraded its refinance activity forecast based on the recent easing in mortgage rates and rise in refinance applications, as expressed by the mortgage giant’s Refinance Application-Level Index (RALI).
The report predicts refinance activity will grow to $502 billion in 2025—$38 billion higher than its previous forecast—and progress further to nearly $700 billion in 2026.
Refinancing your mortgage can be a good financial move if you can qualify for a lower rate and shorten your loan term. Due to closing costs and fees associated with refinancing, many mortgage experts say refinancing makes sense only if you can reduce your current rate by at least 1%. Some strategies that could help whittle down your refinance rate include comparing rates from at least three refinance lenders, asking lenders about reducing closing costs, working to build your credit score, choosing a loan with a shorter term or buying discount points.
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.
Faster, easier mortgage lending
Check your rates today with Better Mortgage.
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 time frame 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 impacting 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.”
