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Mortgage rates are finally down after spending the last few months creeping up. Next year, mortgage rates are expected to go down further, though how much they'll fall depends on the economy, inflation, and the Federal Reserve.
As long as inflation slows, the Fed will likely continue lowering the federal funds rate throughout 2025. This should allow mortgage rates to ease. But if inflation remains elevated or the economy starts to heat back up, the Fed may not lower rates as much as expected.
Next week, the Fed will have its final meeting of 2024, and traders are betting that it will lower rates by another 25 basis points, according to CME FedWatch. This probably won't have much of an impact on mortgage rates since this cut is already priced in. But investors will be listening closely to Fed Chair Jerome Powell's press conference following the meeting for clues as to how the central bank might approach cuts in 2025, which could lead to some rate volatility.
Use our free mortgage calculator to see how today's interest rates will affect your monthly payments.
By clicking on "More details," you'll also see how much you'll pay over the entire length of your mortgage, including how much goes toward the principal vs. interest.
Average 30-year mortgage rates are hovering around 6.30%, according to Zillow data. Rates increased last month, averaging around 6.56% in November. But they're a bit lower today.
The 30-year fixed-rate mortgage is the most popular home loan. With this type of mortgage, you'll pay back what you borrowed over 30 years, and your interest rate won't change for the life of the loan.
The lengthy 30-year term allows you to spread out your payments over a long period of time, meaning you can keep your monthly payments lower and more manageable. The trade-off is that you'll have a higher rate than you would with shorter terms, like a 15-year mortgage.
Average 15-year mortgage rates are in the high 5% range, according to Zillow data. In November, 15-year rates averaged 5.92%.
If you want the predictability that comes with a fixed rate but are looking to spend less on interest over the life of your loan, a 15-year fixed-rate mortgage might be a good fit for you. Because these terms are shorter and have lower rates than 30-year fixed-rate mortgages, you could potentially save tens of thousands of dollars in interest. However, you'll have a higher monthly payment than you would with a longer term.
Refinance rates have been similar to purchase rates recently, though in some cases they're a bit higher. In November, 30-year refinance rates averaged 6.62%, while 15-year refinance rates were around 5.96%.
If you're wondering if you should refinance now, you'll need to crunch the numbers to see if it makes sense. Some experts advise only refinancing if you can reduce your rate by a percentage point or more, but it really comes down to whether it works for your individual circumstances.
If you can save enough each month by refinancing that you can recoup your costs in a reasonable amount of time, it might be worth it. You can calculate this by dividing your closing costs by the amount you're saving on your monthly mortgage payment. So, if you paid $3,000 to refinance and were able to lower your monthly payment by $200, it would take you 15 months to break even on your refinance.
Here's how 30-year and 15-year mortgage rates have trended over the last five years, according to Freddie Mac data.
Mortgage rates are determined by a variety of different factors, including larger economic trends, Federal Reserve policy, your state's current mortgage rates, the type of loan you're getting, and your personal financial profile.
While many of these factors are out of your control, you can work on improving your credit score, paying off debt, and saving for a larger down payment to ensure you get the best rate possible.
The Fed increased the federal funds rate dramatically in 2022 and 2023 to try to slow economic growth and get inflation under control. Inflation has since slowed significantly, but it's still a bit above the Fed's 2% target rate.
Mortgage rates aren't directly impacted by changes to the federal funds rate, but they often trend up or down ahead of Fed policy moves. This is because mortgage rates change based on investor demand for mortgage-backed securities, and this demand is often impacted by how investors expect Fed policy to affect the broader economy.
Fed officials lowered rates at their meetings in September and November, and they're expected to continue cutting rates at future meetings. This should help mortgage rates trend down.
Mortgage rates increased in November, but they've been lower so far this month. Where they go next depends on a lot of unknowns, so we'll need more data to see how inflation and the labor market are trending. In general, rates aren't expected to drop again until next year.
Mortgage rates are unlikely to drop back down to the historic lows of 2020 and 2021, when 30-year fixed rates fell below 3%. But rates are expected to continue to ease throughout the next year or two, and it's possible rates could ultimately settle in closer to 6% in the next couple of years.
Most major forecasts expect mortgage rates to go down throughout 2025 as the Fed continues to lower its benchmark rate. But because mortgage rates are influenced by the economy, this forecast could change depending on how the economy evolves in 2025.
