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Even though the Federal Reserve lowered the federal funds rate at its meeting last week, mortgage rates have gone up in recent days.
Borrowers often expect mortgage rates to go down when the Fed cuts rates, but Fed moves are typically priced in well ahead of time and don't have much of an impact once the Fed actually raises or lowers its benchmark rate. So why did mortgage rates go up?
The Fed also released new economic projections at this meeting, and they show policymakers are expecting fewer rate cuts next year. This is what caused mortgage rates to rise.
Mortgage rates are expected to go down next year, but it's now unclear how much they'll drop — if they drop at all. If inflation remains sticky and the Fed only cuts rates once or twice, mortgage rates may only ease a little bit.
Use our free mortgage calculator to see how today's mortgage rates would impact your monthly payments. By plugging in different rates and term lengths, you'll also understand how much you'll pay over the entire length of your mortgage.
Click "More details" for tips on how to save money on your mortgage in the long run.
Average 30-year mortgage rates are in the high 6% range, according to Zillow data. Rates averaged around 6.56% in November.
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 hovering around 6%, 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 comparable to purchase rates this month. In November, 30-year refinance rates averaged 6.62%, while 15-year refinance rates were around 5.96%.
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.
The Fed lowered rates three times in 2024, but it's expected fewer cuts in 2025. This means mortgage rates might not fall as much next year.
Mortgage rates are expected to ease a bit next year, though how much they fall depends on the economy.
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 go down throughout the next year or two, and it's possible rates could eventually settle in closer to 6%.
Because rates are lower now, some homeowners may be wondering if it's a good time to refinance. If you have a high interest rate on your current mortgage and could save on your monthly payment by refinancing into a lower rate, it could be worth it to refinance now.
On the other hand, because mortgage rates are expected to go down further, you might benefit from waiting to refinance.
Whether it makes sense for you to refinance ultimately comes down to how much you'll pay to refinance and how much you can save on your mortgage payment. If you save enough each month that you can recoup your out-of-pocket expenses relatively quickly, then refinancing may be worth it. You could also refinance now and then refinance again once rates drop further — it just depends on what makes sense for you financially.
Your mortgage interest rate is how much you'll pay to borrow money for a home purchase or refinance. Each month, you'll make a payment to pay back the funds you borrowed, and a portion of that payment will go toward paying the interest you owe.
The portion of your monthly payment that goes toward interest will go down over time through a process called amortization. As you pay off more of your mortgage, the loan balance is reduced, lowering your interest costs.
For example, say you get a mortgage of $300,000 with an interest rate of 6.5% to buy a home. Every month, you'll pay about $1,896. On your very first mortgage payment, only $271 of that amount will go toward reducing your loan balance, while $1,625 will be paid in interest. But if you fast forward 20 years, $992 of that same monthly payment will be applied to the loan balance, and about $905 will go toward interest.
You can ask your lender for an amortization schedule to see the breakdown of your payments throughout the life of the loan, or you can use an online amortization calculator.
Mortgage rates change throughout the day, and they can fluctuate day-to-day or week-to-week based on what's going on in the economy. If economic conditions are relatively stable, mortgage rates might not move much. But uncertainty or expectations that conditions will change soon can send rates up or down.
Mortgage lenders don't all offer the exact same rates, so you could save a lot of money by shopping around for the best rate.
Experts generally recommend getting quotes from a few different lenders — consider applying with at least three lenders to get an idea of the range of rates available to you. If you're still early in the process, you can apply for preapproval, which allows you to get an estimate of your rate while you're still searching for homes. If you're under contract on a home, you can apply for regular approval, which will give you a more accurate picture of what you'll pay with a given lender.
Be sure to look at the overall offer. If you have to pay a lot in fees to get a lower rate, it might not be worth it. Also consider other benefits and features that are important to you, like if a lender has great customer service or down payment assistance.
