There is no crystal ball on what will happen with mortgage rates in the future. This quarter, I’ve been asked, several times, for my thoughts on future mortgage rates. According to Government-sponsored enterprises forecasts, the mortgage rates this year (30-year mortgages) will remain over 6% and possibly drop to at most 5.60% by end of 2025. The commercial bankers (MBA) forecast are a bit higher at 6.60% this year and 6.4% by end of next year. Most recently, both Fannie Mae and MBA stated that they expect mortgage rates to remain above 6% in 2026 though keep in mind that without knowing inflation rates, growth rates, and employment rates these predictions are not reliable.
The question that usually follows has different answers for different people – Should I hold out for lower rates before a refinance or house purchase? If you want an answer for your situation then always have us run the numbers regardless of whether you are considering refinancing, buying a new home, or paying off your mortgage. In general, keep in mind that expected changes in mortgage rates this coming year are NOT significant and should not play a big role in your home purchase decision. On the other hand, it is significant to consider the cost of your mortgage over the next five years and the impact the mortgage will have on your cash flow.
Of course, the most common question is whether mortgage rates will ever go down to 3% again. Mortgage rates have seldom been at 3% or lower. This low rate only occurs in extreme times, (such as during the peak of the COVID-19 pandemic). We don’t know if rates will drop significantly in the next years BUT we do know that economic conditions need to deteriorate significantly for rates to fall that low again.
Edi Alvarez, CFP®
BS, BEd, MS