The trajectory of mortgage rates in 2025 remains a critical concern for prospective homebuyers, homeowners looking to refinance, and industry stakeholders. After a volatile period marked by high inflation, Federal Reserve interventions, and shifting trade policies, the question of whether mortgage rates will fall in 2025 is complex.
Will Mortgage Rates Come Down?
This article examines the key factors influencing mortgage rates, including the Federal Reserve’s monetary policies, the trend of reduced inflation, and the impact of tariffs introduced by the Trump administration.
By analyzing these elements, we aim to provide a comprehensive outlook on the potential direction of mortgage interest rates in 2025.
Whether you are looking to buy a house, refinance your mortgage for a lower payment or take cash out with a home equity line of credit, the RefiGuide will help you time the market as much as possible.
The Impact of Reduced Inflation on Mortgage Rates
Inflation is a critical driver of mortgage rates, as it influences both the Federal Reserve’s policy decisions and the bond market. In June 2022, inflation peaked at 9.1%, prompting aggressive Fed rate hikes that drove mortgage rates upward (Business Insider, 2025). By April 2025, the Consumer Price Index (CPI) had declined to 2.4%, nearing the Fed’s 2% target, signaling a significant cooling of inflationary pressures (CBS News, 2025). This reduction in inflation has raised hopes that the Fed may cut rates further, which could indirectly lower mortgage rates.
A declining inflation rate typically encourages the Fed to adopt a more accommodative monetary policy, reducing the federal funds rate and signaling to lenders that borrowing costs may decrease. However, the impact on mortgage rates is indirect, as they are more closely tied to the 10-year Treasury yield, which reflects investor expectations about future inflation and economic growth. If inflation continues to stabilize or fall below the Fed’s 2% target, as some economists predict, mortgage rates could see a gradual decline in the second half of 2025 (Morningstar, 2025). For instance, Fannie Mae forecasts that 30-year mortgage rates could drop to 6.2% by the end of 2025, while the Mortgage Bankers Association predicts a slightly higher 6.7% (Bankrate, 2025).
However, the path to lower inflation is not guaranteed. Persistent inflation above the Fed’s target could delay rate cuts, keeping mortgage rates elevated. Additionally, external factors, such as trade policies, could disrupt the inflation trajectory, complicating the outlook for mortgage rates.
The Federal Reserve’s Role in Shaping Mortgage Rates
The Federal Reserve plays a pivotal role in influencing mortgage rates, though it does not directly set them.
The Fed’s primary tool is the federal funds rate, which dictates the cost of borrowing for banks and, indirectly, affects consumer lending rates, including mortgages.
Mortgage interest rates are more closely tied to the yield on 10-year Treasury notes, which are influenced by economic conditions and Fed policies. In 2022 and 2023, the Fed aggressively raised the federal funds rate to combat soaring inflation, pushing mortgage rates to a peak of nearly 7.8% in October 2023 (Morgan Stanley, 2025). However, in late 2024, the Fed implemented three consecutive rate cuts, reducing the federal funds rate by a full percentage point to a range of 4.25% to 4.5%.
Despite these cuts, mortgage rates have not followed a straightforward downward path. In January 2025, 30-year fixed mortgage rates hovered around 6.81%, a slight decline from their peak but still elevated compared to pre-pandemic levels (Forbes Advisor, 2025). The Fed’s decision to pause rate cuts in its January, March, and May 2025 meetings reflects a cautious approach, driven by concerns over persistent inflation and economic uncertainty (Bankrate, 2025). Federal Reserve Chairman Jerome Powell emphasized that the risks of higher inflation and unemployment have increased, particularly due to trade policy changes, and the Fed is adopting a “wait-and-see” stance.
Market expectations for 2025 suggest that the Fed may resume rate cuts, potentially starting in June, with projections of two to four cuts totaling 0.5% to 1% by year-end. These cuts could lower the federal funds rate to between 3.25% and 4%, potentially exerting downward pressure on mortgage rates. However, the relationship between Fed rate cuts and mortgage rates is not linear, as other economic factors, such as investor demand for Treasury bonds and inflation expectations, also play significant roles (Bankrate, 2025).
The Influence of Tariffs on Mortgage Rates
The Trump administration’s tariff policies, announced in April 2025, have introduced significant uncertainty into the economic landscape. These tariffs, including a 145% tariff on Chinese imports and a baseline 10% tariff on goods from over 180 countries, are expected to increase consumer prices and potentially reignite inflation. Higher inflation could prompt the Fed to maintain or even raise interest rates, pushing mortgage rates upward.
The announcement of tariffs initially caused a brief dip in mortgage rates, as investors sought the safety of U.S. Treasury bonds, lowering yields. On April 3, 2025, the 30-year fixed-rate mortgage fell to 6.64%, down slightly from the previous week. However, this decline was short-lived, as renewed inflation concerns and a stabilizing stock market led investors to sell bonds, driving yields and mortgage rates higher (CNBC, 2025). By May 2025, 30-year mortgage rates had climbed back to around 6.8% to 7%, reflecting ongoing market volatility.
Tariffs also pose challenges for the housing market beyond mortgage rates. The National Association of Home Builders estimates that tariffs could increase new home prices by an average of $9,200, exacerbating affordability issues (Forbes Advisor, 2025). Additionally, proposed mass deportation policies could reduce the labor supply in the homebuilding industry, further driving up construction costs and home prices (HousingWire, 2025). These factors could dampen housing demand, potentially offsetting some upward pressure on mortgage rates if economic growth slows.
Mortgage Rate Forecasts for 2025
The consensus among housing and economic experts is that mortgage rates will remain elevated in 2025, likely fluctuating between 6% and 7%. The National Association of Home Builders predicts an average 30-year fixed rate of 6.66% for 2025, with a potential decline to 6.16% in 2026. Realtor.com forecasts a slightly lower average of 6.3%, with rates possibly reaching 6.2% by year-end (U.S. News, 2025). These projections hinge on the assumption that inflation continues to cool and the Fed implements modest rate cuts.
However, several risks could keep rates higher. Persistent inflation, driven by tariffs or other factors, could delay Fed rate cuts, maintaining pressure on Treasury yields and mortgage rates. Additionally, a strong economy and robust labor market could reduce the urgency for Fed intervention, keeping rates in the high 6% to low 7% range. Conversely, if economic growth slows or the U.S. enters a recession, mortgage rates could decline more significantly, though this scenario would likely bring other challenges for homebuyers, such as reduced housing inventory and higher unemployment.
What Will Mortgage Rates Be in 2025?
Predicting exact mortgage rates in 2025 is challenging, but several economic indicators provide useful insights. As of late 2024, mortgage rates remain elevated due to the Federal Reserve’s efforts to combat inflation. However, with inflation showing signs of easing and potential rate cuts expected in late 2025, many experts believe mortgage rates may gradually decline. Analysts project average 30-year fixed mortgage rates could range between 5.5% to 6.5% in 2025, depending on Federal Reserve policy shifts, economic growth, and global financial stability. If inflation continues to cool and job markets remain steady, mortgage rates may improve modestly, making it more attractive for buyers and refinancers alike. However, volatility in global markets or persistent inflationary pressure could keep rates higher than hoped. Homebuyers and investors should stay informed and work closely with lenders to lock in the most favorable terms during periods of rate dips. Ultimately, while a dramatic drop in mortgage rates is unlikely, a slow, measured decline throughout 2025 could bring moderate relief to borrowers navigating a higher-rate environment.
Implications for Homebuyers and Homeowners
For prospective homebuyers, the high mortgage rate environment in 2025 presents challenges but also opportunities. The “lock-in effect,” where homeowners with low-rate mortgages from 2020–2021 are reluctant to sell, has constrained housing supply, keeping home prices elevated. The median home price in March 2025 was $403,700, according to the National Association of Realtors, underscoring ongoing affordability issues (Bankrate, 2025). However, a slight increase in housing inventory, driven by new construction and builder incentives like rate buydowns, could provide some relief (HousingWire, 2025).
Homebuyers should focus on improving their credit scores, reducing debt, and shopping around for the best loan terms to secure the lowest possible rates. Refinancing may also be a viable option for homeowners if rates drop later in 2025, particularly if they currently hold mortgages with rates above 7% (Bankrate, 2025). Monitoring economic indicators, such as inflation reports and Fed announcements, will be crucial for timing purchases or refinances.
Will Mortgage Rates Ever Go Down in 2025?
Whether mortgage rates will continue to fall in 2025 depends on a delicate interplay of Federal Reserve policies, inflation trends, and tariff-related economic impacts. While the Fed’s potential rate cuts and cooling inflation offer hope for modest declines, tariffs and persistent economic strength could keep rates elevated. Homebuyers and homeowners should remain vigilant, weighing current market conditions against their long-term financial goals. The RefiGuide can help you remain informed, so you can can navigate the complex mortgage rate landscape of 2025.
References
Bankrate. (2025, May 7). How The Fed’s Rate Decisions Move Mortgage Rates.
Business Insider. (2025, May 7). Understanding the Federal Reserve’s Role in Mortgage Rates.
HousingWire. (2025, February 4). How will mortgage rates respond as tariffs and inflation loom large?.
Morgan Stanley. (2025, March 3). Will Mortgage Rates Go Down In 2025?.
About RefiGuide
Bryan Dornan is a financial journalist and currently serves as Chief Editor of RefiGuide.org. Bryan has founded several mortgage and marketing companies and has worked as a loan officer and mortgage broker in the industry for over 25 years and has a wealth of experience in providing mortgage clients with the highest level of service in the industry. Bryan's continual focus is to promote affordable home-ownership to consumers like you across the United States. He also writes for RealtyTimes, Patch, Buzzfeed, Medium and other national publications. Find him on Twitter, Muckrack, and Linkedin
More articles by RefiGuide