After two consecutive weeks of increases, mortgage rates have finally decreased this week. The 30-year fixed rate is now two basis points lower than this time last year — but will they continue to trend downward? These small declines may leave you wondering: Is it a good time to buy a house?

Learn how a government shutdown impacts mortgage rates.

In this article:

Are mortgage rates dropping?

So, will mortgage rates go down even more this year?

Should you wait to buy until mortgage rates go down?

Strategies for buyers in today’s mortgage market

FAQs

As of Oct. 9, Freddie Mac reported that the average 30-year fixed-rate mortgage rate had fallen by four basis points to 6.30%. The 30-year rate is now two basis points lower than it was this time last year. In early Oct. 2024, mortgage rates were averaging 6.32%.

This week’s 15-year fixed mortgage rate is down two basis points to 5.53%, which is 12 basis points higher than this time last year.

In situations like these, it pays to look at the numbers. Here’s the Freddie Mac data on mortgage rates for the past 52 weeks as of Oct. 9, 2025:

30-year fixed-rate mortgage: 6.26% to 7.04%

15-year fixed-rate mortgage: 5.41% to 6.27%

If you just go by the numbers, rates on 30-year and 15-year fixed-rate mortgages are between the highs and lows of the last 12 months, but are definitely leaning toward the lower end.

Now that the Federal Reserve has lowered the fed funds rate, why have mortgage rates ticked up? This is actually very similar to what happened last year when the Fed slashed its rate for the first time.

When the Fed — the common nickname for the Federal Open Market Committee (FOMC) — held its Sept. 2025 meeting, it voted to lower the federal funds rate by 25 basis points. The central bank had cut its rate three times at the end of 2024, but this was the first slash of 2025.

That federal funds rate tends to directly influence rates on shorter-term lending. While mortgage rates aren’t directly based on the fed funds rate, they typically mirror fed fund rate trends. So, if the fed funds rate goes down, mortgage rates will likely follow. The inverse is also true.

When people anticipate a fed funds rate cut, mortgage rates usually fall in the weeks leading up to the meeting. However, home loan rates don’t necessarily continue to decrease after a fed funds rate cut.

In 2024, mortgage rates plummeted throughout August and early September as people expected the Fed to lower its rate at the bank’s September meeting. But mortgage rates stopped decreasing significantly after this meeting — and after the two additional rate cuts later that year.

The same seems to have happened in 2025. Mortgage rates gradually declined in the weeks leading up to the September meeting when people expected the Fed to lower its rate, and even though the fed funds rate did go down, mortgage rates bounced back up. Now, a few weeks later, they’ve settled down.

Dig deeper into how the Federal Reserve affects mortgage rates.

While short-term lending rates closely follow the fed funds rate, mortgage rates more closely follow the 10-year Treasury yield. As of Oct. 7, the 10-year Treasury yield sat at 4.14% — up from 4.03% a year prior.

You’re probably wondering why today’s mortgage rates aren’t in the 4% range, right?

To determine current mortgage rates, lenders add a “spread” to the 10-year Treasury yield. The spread is simply the difference between the rates consumers pay and the rate on the 10-year Treasury. Without getting too much into the weeds, charging a spread helps mortgage lenders cover costs associated with making loans to the public and the risk of providing such loans.

For example, the current average 30-year fixed mortgage rate is 6.30%, and the 10-year Treasury yield is 4.14% — a spread of 2.16%.

Find out when mortgage rates could finally go back down to 5%.

In short, no. You probably shouldn’t wait to buy a home until mortgage rates drop more drastically. Mortgage rates are just one part of the affordability equation. You also have to consider home prices, a factor of housing supply and demand.

The current housing market is in a crunch. To put it simply, buyers outnumber homes for sale, especially homes in price ranges accessible to the first-time home buyer. When supply and demand are out of balance like this, home prices tend to remain high since sellers know they’ll have multiple buyers interested.

According to data from the Federal Reserve Bank of St. Louis, the median sale price of single-family homes has generally trended upward since Q1 of 2009. At that time, the median sale price was $208,400. The median price had risen to $410,800 by Q2 2025.

While recession speculation has recently increased, prospective buyers likely won’t see much relief in a true recession. If interest rates drop like they tend to do in recessions, that will increase the number of people looking to buy and lock in a lower interest rate. That drives up demand for the already limited supply of homes.

To truly save, buyers need both interest rates and home prices to drop. Mortgage rates are inching down this month, and housing prices are stagnant or even lowering in certain parts of the country. Still, rates are higher than they were this time last year, and prices are still increasing in many cities. Situations may be improving for buyers, but there’s a lot of work to be done.

Learn how mortgage rates respond during a recession.

If you crave the comforts of homeownership, the best strategy in today’s market may be to buy what you can afford. Whether that means a smaller house or a condo instead of a single-family home, owning something puts you in a position to start building equity.

Yes, shopping for the best mortgage lenders with low rates and fees is crucial when getting a mortgage. But to help you find your ideal home that balances affordability and desirability, it pays to adopt a curious mindset and consider lesser-discussed financial tools.

There’s no better time to learn more about your local real estate market than today. By adopting a sense of curiosity, you could discover that your city has more to offer housing-wise than you previously thought.

You may want to take weekend excursions to lesser-known neighborhoods and suburban developments beyond the city limits. You never know what you’ll find that could expand your idea of what “home” looks like — including new developments, school districts, and types of homes.

Learn more: This map shows average mortgage rates by state

If you’re looking to spend less on a home in today’s mortgage market, a house needing a bit of TLC could help you do just that. Loans like the FHA 203(k) mortgage can roll your purchase and renovation costs into one convenient loan. When you qualify and have an accepted offer, your lender immediately funds the home’s purchase price and puts the cost of renovations into an escrow account. As you make repairs, funds get dispersed.

How would it feel to have a longer commute yet come home to a house you love? Master-planned communities tend to crop up outside major cities, offering amenities like parks, shopping, and top-notch schools — all in exchange for a longer commute. These areas could look a lot more palatable if they offer commuting options like park-and-ride or commuter rail. Dare to consider parking the car and taking public transit if it could get you into the home of your dreams.

While shared walls, floors, and ceilings might not immediately scream “dream home,” they could help you find an affordable home in a terrific area. Condominiums come in various shapes and sizes, from apartment-style flats to townhomes. Depending on the area, you might even score a small backyard. However, be sure to consider HOA fees when calculating your monthly payment.

While the monthly payment on a 15-year mortgage will be higher than the typical 30-year, these loans have plenty of upsides. Not only will you pay off your home on a speedier timeline, but you’ll also likely score a lower interest rate and save a ton on interest over the life of your loan.

To make today’s mortgage rates more palatable, look into rate buydown options. An interest rate buydown lets you pay cash up front in exchange for a reduced interest rate on your mortgage. Buydowns can be permanent or temporary (for your loan's first one to three years, for example). Even a few years of lower rate relief can make today’s home prices more affordable.

Read about the 5-year mortgage rate predictions.

Expert opinions differ on what mortgage rates will do over the next year or so. The Mortgage Bankers Association (MBA) predicted in its September forecast that the 30-year fixed rate would hit 6.5% by the end of 2025 and 6.4% in Q4 2026. However, the September Fannie Mae Housing Forecast was more optimistic. Fannie Mae predicted that rates will go down to 5.9% by the end of next year. Both forecasts put mortgage rates at above 6% throughout 2025, though.

Compared to historical mortgage rates, 7% isn’t considered a high rate. While it might be high compared to pandemic-era rates that were sub-3%, it’s on par with mortgage rates in the 1990s, and considerably lower than the double-digit rates seen in the late 1970s and early 1980s.

It’s not impossible to get a 3% interest rate, but doing so requires the perfect set of circumstances. You’d need to find a homeowner with an assumable mortgage — one that can be passed to a new owner at the same interest rate as the original loan. Assumable mortgages are generally government-backed loans from agencies like the VA, FHA, or USDA.

Laura Grace Tarpley edited this article.

Mortgage rates decreased in anticipation of a Federal Reserve rate cut on Sept. 17, but rates started increasing again after the Fed meeting. As of Oct. 2, the weekly 30-year mortgage rate had increased by four basis points to 6.34%. Interest rates are also unlikely to decrease significantly before the end of 2025. So, how can you get the lowest mortgage rate possible?

Learn more: The best mortgage lenders for first-time home buyers

Analysis by Yahoo Finance of nearly 5,000 mortgage lenders reporting 2024 loan information under the Home Mortgage Disclosure Act reveals the surprising truth: the lenders offering the lowest mortgage rates.

Unfortunately, the results won't help the typical borrower.

By and large, the mortgage lenders who offered astonishing, rock-bottom mortgage rates made a tiny number of loans — no doubt allowing drastic rate concessions to a small slice of preferred customers. We're talking median interest rates from 2.4% to 4.75%, which are made by lenders underwriting loans to as few as a handful of customers.

Other lenders offering the absolute lowest mortgage rates in 2024 were banks catering to select clientele, credit unions serving local members, and homebuilders financing their own construction.

So, what if you aren't buying new construction from a lender offering a buydown, a member of a credit union willing to offer below-market-rate loans, or an affluent investor with a million-dollar portfolio?

Here are eight strategies to get the lowest mortgage rates with the cheapest home loan you can qualify for — all while using a regular, more well-known mortgage lender.

You may already know that mortgage rates vary by credit score. Whenever you boost your credit score from a lower to a higher tier, you save money.

For example, the entry-level FICO Score of 620 might earn you an annual percentage rate, or APR, of 7.59% (based on mortgage rates as of early October, with the purchase of one discount point). Raise your score to the next credit band of 640 to 659, and your interest rate could improve to 7.43%.

Bigger rate discounts are offered as you climb the credit score ladder. Here are the interest rate breaks as shown by MyFico.com's Loan Savings Calculator:

Read more: What credit score do you need to buy a house?

The amount of recurring monthly debt you carry when applying for a mortgage is another significant factor in the interest rate you'll earn. The more debt, the higher your mortgage rate.

To get the lowest mortgage rate, aim for a DTI of 25% or less. To calculate your debt-to-income ratio, divide your total monthly debt by your monthly income before withholdings. For example, say you need $700 for monthly rent, $300 for a vehicle loan, and $100 in student loan payments. That's $1,100. With a monthly gross income of $5,000, your DTI is 22%.

1100 / 5000 = 0.22

You're in the pocket for a lower mortgage rate. Mortgage lenders may consider DTIs up to 50%, but prefer 35% or less — and the lowest mortgage rates go to borrowers with DTIs of 25% or less.

Another best practice for getting the lowest mortgage rate is to make as much of a down payment as you comfortably can. While you can get a home loan with as little as 3% down, paying more upfront will earn you a lower mortgage rate.

For first-time home buyers, the median down payment was 9% in 2024, according to the National Association of Realtors.

Prepaying interest to lower your ongoing mortgage rate, called buying discount points, gains popularity in times of higher interest rates.

Buying one point equals 1% of the loan amount and will generally reduce your interest rate by one-quarter of a percentage point. Any number of points can be purchased and applied in fractional amounts too.

However, it's a good idea to calculate the up-front cost of buying points and compare that with the discount you receive on your long-term interest rate. Other factors to consider in this calculation include how long you expect to live in the home and your down payment.

Lenders sometimes add a point or two to a mortgage proposal to make their offered interest rate appear more enticing. But remember, you're actually paying for the discount with an up-front fee.

When shopping for a loan, compare loan offers with zero points. Then, you can decide how many points to buy, if any, to lower your interest rate.

Here's a surprising fact: In a Zillow survey of home buyers over seven months of 2024, about 45% obtained a mortgage rate below 5% — when rates were above 6.5%, like they are now.

How? One-third were successful in negotiating special financing with the home seller or builder. More than one-quarter got a rate buydown from the seller or builder (see below). Nearly a quarter (23%) bought discount points, as we've just mentioned.

If mortgage rates are near 6% and you want to get below 5%, you'll need to buy four to five discount points. (Remember, each point you buy reduces your interest rate by approximately a quarter of a point.)

For example, one point on a $300,000 mortgage would equal $3,000. If you want to purchase five points, you'll likely pay $15,000. You will want to discuss your point-buying strategy with your lender to ensure it gets your long-term loan rate to your target.

Borrowers can lower their mortgage interest rate for the first few years of the loan term with a buydown. Home builders, sellers, and some lenders sometimes offer an interest rate buydown to boost sales. However, it is a rare option among mortgage lenders.

For national mortgage lenders with buydown programs, check out Guild Mortgage and AmeriHome Mortgage.

For example, a buydown might lower your interest rate from 7% to 6.5% for two years. It can be a good deal if the company offering the buydown isn't making it up with fees somewhere else.

While you get a short-term break on the interest rate, your payments and total interest may actually be higher over the long term. Buying down your interest rate is a strategy that requires running the numbers on the long-term benefits.

If you're interested in a buydown, compare a mortgage both with and without a buydown. Lenders will qualify you based on the permanent interest rate, not the temporary buydown rate. Finally, be prepared for your monthly payment to rise at the end of the buydown’s discount period.

Dig deeper: When will mortgage rates go down?

A mortgage product that increases in popularity whenever rates begin to rise is back: the adjustable-rate mortgage.

ARMs have a fixed interest rate for an introductory period, often three to 10 years, and then the rate changes regularly, usually once or twice a year. Tips when shopping for an ARM:

Look for an introductory rate that is lower than a fixed-rate mortgage.

Choose a term you feel comfortable with, perhaps in line with how long you plan to stay in the home.

Ensure you budget for potential increases in your monthly payment if the interest rate rises after the introductory fixed-rate period ends.

In the past, it was common to find ARMs with introductory rates well below the prevailing long-term fixed interest rate. An ARM could be a good idea today, but the intro rate isn't always lower anymore. You'll have to shop diligently — and bravely negotiate.

Dig deeper: Adjustable-rate vs. fixed-rate mortgage — Which should you choose?

Are you looking for an interest rate that never changes and allows you to build home equity faster? Consider a shorter-term loan. Mortgages with 20- or 15-year fixed terms, as opposed to the traditional 30-year term, typically come with lower interest rates.

However, since the term is shorter, monthly payments tend to be higher.

Keep learning: 15-year vs. 30-year mortgage — How to decide which is better

An assumable mortgage allows you to take over the remaining payments of an existing home loan. You would likely make a lump sum payment to the current owner to cover the value of any equity or for a profit. That would require you to have the needed cash on hand or perhaps get a loan.

As tempting as it might be to pick up a low-interest-rate assumable loan, most conventional mortgages aren't eligible. That means you would need to find a seller with an FHA, VA, or USDA loan.

Since mortgage rates are constantly changing, and each lender's rate varies, the lowest mortgage rate you can earn requires some research. You will want to know your credit score, debt-to-income ratio, and the amount of your down payment.

With that information, you can begin contacting lenders. Knowing generally where you want to buy a house and how much it will cost, you can gather rate estimates based on your creditworthiness.

Once you have two or three contenders, you can apply for preapproval with each and get a more exact mortgage rate.

Learn more: 6 tips for choosing the right mortgage lender

Recently, home loan interest rates have been in the low-to-mid-6% range. Many (71.3%) of existing homeowners have a mortgage rate below 5%, and over half (53.4%) have a rate below 4%, according to Realtor.com. So, refinancing is not an option for many homeowners right now.

However, owning a home is a long-term commitment, and mortgage rates are very cyclical. Just because mortgage rates are above historic lows doesn't mean a refinancing opportunity will not present itself some years down the road.

After you move in, keep an eye on interest rates. Look for a dip of about 1% to 2% below your current mortgage rate before refinancing. Just remember — there will be refinance closing costs, and you need to decide if your goal is to lower your monthly payment or to pay off your home sooner.

Dig deeper: 6 times when it makes sense to refinance your mortgage loan

The lowest mortgage rate ever on a 30-year loan was 2.65% in January 2021, according to Freddie Mac. It takes dramatic and systemic financial stress to shock mortgage rates to such a low level. COVID-19 was just that. Some 15 months later, mortgage rates were up to 5%.

Never say never — but it's unlikely that mortgage rates will go back down to 3%. A drastic event (like the COVID-19 pandemic) would have to occur again for rates to drop this low.

VA loans, especially 15-year VA loans, usually have the lowest mortgage rates because shorter terms have lower rates than longer terms.

Laura Grace Tarpley edited this article.

Knowing how much house you can afford is a matter of comparing your financial situation to the factors lenders consider when approving a mortgage application. Those include a steady income, adequate savings for the down payment and closing costs, the amount of debt you carry, and your repayment history.

However, the amount of money you are approved to borrow with a mortgage and how much house you can comfortably afford can be two very different numbers. Lenders want to make loans for the highest dollar they feel comfortable with based on certain elements of a borrower’s personal finances. That's a business decision.

For you, affordability is a quality-of-life calculation. Only you know your comfort level with all of the expenses due each month.

Run the calculations in the home affordability calculator above, then aim lower than the maximum results to give you a financial cushion. Armed with this information, you can determine which type of mortgage you might qualify for — and, more importantly, how much house you can afford.

Knowing your target loan amount will help you determine how much house you can afford. In this formula, you'll use:

Your gross monthly income (before taxes and deductions)

Your monthly debt, such as vehicle and student loans and credit cards

The down payment you have saved

The loan term (e.g., 15-year versus 30-year mortgage)

The interest rate you'll qualify for

Your credit score

A sample mortgage affordability calculation could be:

Gross annual income: $70,000 (or about $5,800 per month)

Your monthly debt: $250

Down payment: $20,000

Loan term: 30 years

Interest rate: 6.5%

Once you factor in payments for private mortgage insurance (PMI), homeowners insurance, and property taxes, such a calculation might yield the result of qualifying for a mortgage up to $213,808, with a home a monthly payment of $2,100.

If you buy a place with a homeowners' association that charges dues, you will also pay a little more each month.

Dig deeper: How much house can you afford with a $70,000 salary?

When you’re determining your house budget, ask yourself two crucial questions: First, how much house can you afford up-front? Second, how much house can you afford in the long-term? The up-front costs consist of your down payment and closing costs, and the longer-term expenses refer to your monthly payments and cash reserves.

Your down payment is the amount you pay in cash when you buy the house. Let’s say you buy a $400,000 home with a $20,000 down payment. Then, you’ll take out a mortgage for the remaining $380,000.

Here are the minimum down payments for the most common types of mortgage loans:

Conforming conventional loan: 3%

Jumbo loan: Usually 10% to 20%

FHA loan: 3.5%

VA loan: 0%

USDA loan: 0%

Use these minimums to determine your true home affordability. For example, if you don’t have 3% of $400,000 — or $12,000 — you probably can’t get a conforming loan, not to mention a jumbo or FHA loan. If you don’t qualify for a USDA or VA loan, then you now know that you should buy a less expensive home. Or save more before buying.

Learn more: What is a down payment, and how does it work?

It’s easy to forget about closing costs when calculating your home-buying budget. The exact amount varies, but you can typically expect to pay 2% to 5% of your loan amount in closing costs.

So, let’s say you want to buy a $400,000 home with a conforming mortgage. You’ll need $12,000 for a down payment and 2% to 5% of the amount you’re borrowing ($388,000), which is $7,760 to $19,400. This means you’ll need a total of $19,760 to $31,400 to realistically afford the house on closing day.

Closing costs vary by mortgage lender but include expenses like a home appraisal, inspection, title search fees, credit report checks, and more.

You probably don't want to spend every last dime on your down payment and closing costs. Then you risk becoming what's known as "house poor." You should still have three to six months of expenses in an emergency fund, and ideally, you’d have some extra money set aside for inevitable house repairs or things you want to buy for the house, like furniture or decorations to make the space feel like yours.

Now that you’re a homeowner, you’ll need to make sure you can comfortably afford the monthly payments. Use our calculator to see how much you can realistically afford. You don’t want to struggle to make your payments each month. In this case, your quality of life could suffer — and you could even end up losing your home in foreclosure.

Learn more: Use our free monthly mortgage payment calculator

In addition to your salary, savings, and repayment history, debt-to-income ratio is one of the most important factors lenders use in determining the home loan you qualify for — and the interest rate you'll be charged.

To start, you'll need three things to calculate your debt-to-income ratio (DTI):

Your monthly gross income, which is before any deductions for benefits, retirement savings, taxes, and the like.

The monthly total of debt payments. That would include the minimum amount due for credit cards, student loan payments, car loans, and other monthly debt payments.

Your estimated monthly mortgage payment.

Next, you'll divide your debt by your income.

A sample calculation:

Monthly debt (including your mortgage): $2,000. Gross monthly income: $5,000. DTI: 2,000 / 5,000 = 0.40.

Another clue to examining home affordability is the 28/36 rule. Lenders use this to zero in on what you currently owe and how a mortgage will impact that debt load. It can help you determine what percentage of your income should go to a mortgage.

28% is the maximum total of your housing expenses. This is known as the front-end debt-to-income ratio, which is your mortgage, property taxes, and homeowners' insurance. Housing costs / income = front-end ratio.

You can reverse the calculation and multiply your income by 0.28 to determine a target mortgage payment.

36% is the limit to your total debt, including the mortgage and existing loans and credit balances. It's called the back-end debt-to-income ratio. All debt / income = back-end ratio.

Tip: Mortgage lenders have flexibility for well-qualified buyers. If you have a decent down payment and a credit score on the high end, they might stretch your back-end ratio as high as the low 40s. However, you will likely also pay a higher interest rate.

Read more: The best mortgage lenders for first-time home buyers

Many lenders allow you to get a conventional loan with just 3% down. They usually prefer a DTI ratio of 41% or less, but you might qualify with a ratio as high as 50%. A conventional loan is a great option if you can afford a 20% down payment, because then you won't have to pay for PMI.

You can get an FHA loan with a down payment as low as 3.5%, as long as you have a minimum 580 credit score. You'll also need a DTI of 43% or lower.

It's important to factor in the cost of FHA mortgage insurance premiums (MIPs). Unlike conventional loans, you cannot avoid MIPs by making a large down payment. Except in special circumstances, you'll likely pay MIPs for the life of the loan — keep this in mind when thinking about monthly mortgage payments.

The U.S. Department of Veterans Affairs doesn't require a down payment on VA loans. Some VA mortgage lenders might ask for a down payment, particularly if other parts of your financial profile aren't super strong. Many lenders also prefer a DTI ratio of 50% or lower.

A zero-down-payment mortgage can be a great way to get your foot in the door as a homeowner, especially as a first-time home buyer. Just remember that the lower your down payment, the higher your monthly payment. While it may be easier to afford a mortgage up-front with 0% down, it could make finances more difficult in the long run.

The U.S. Department of Agriculture also doesn't require a down payment. It also doesn't set a minimum DTI ratio requirement, though many lenders prefer your ratio to be 41% or lower for a USDA loan.

As with VA loans, remember that a 0% down payment makes homeownership more affordable at first, but it results in higher monthly payments. Both are crucial factors to consider when determining how much home you can afford.

You're buying a house. The lender is selling a mortgage. With that perspective, it's easy to understand that only you can determine true affordability. You have to make the monthly home loan payments. And you may want to travel, buy new furniture, buy a new car, save for the future — or a hundred other things.

So, a lender might approve you for a loan to buy too much house with a too-large payment. Your sense of what you can really afford may convince you to buy a house at a more reasonable purchase price with lower payments.

That's being in control of home affordability.

Learn more:

What is the monthly payment on a $600,000 mortgage?

How much is a mortgage on a $500,000 house?

What is the monthly payment on a $400,000 mortgage?

How much is the monthly payment on a $300,000 mortgage?

What is the monthly payment on a $200,000 mortgage?

Having a healthy savings stash helps build your home purchasing power. That means you can make a decent down payment and show that money is set aside for not only your housing payment but all of your monthly debt, including a car payment, credit card debt, and living expenses. A good credit report not only impacts how much home you can afford but also helps you qualify for a lower interest rate.

In addition to the mortgage loan payment, insurance premiums, and taxes, you’ll want to consider things like HOA fees, and if you put less than 20% down on a conventional loan, you’ll likely have to pay private mortgage insurance. There are also everyday expenses to factor in, such as transportation costs, childcare, or furniture for your new home.

One big clue to knowing you are in a good place financially to buy a home is when your current monthly expenses are well in hand. That means you have a comfortable household income, are well on top of credit card payments, and have set aside some cash for unexpected expenses. Your total monthly debt is within the DTI parameters we mentioned above. And your annual income is steady and perhaps even expected to grow in the years ahead.

Debt is a major part of home affordability. Your debt-to-income ratio is a key factor that lenders look at. Using a home affordability mortgage calculator can give you a clue as to how your debt impacts your homeownership qualifications.

In 2021, the average 30-year mortgage rate fell below 3%. Now, according to Freddie Mac, it’s over 6.25%. If you’re in the market for a mortgage loan, you may be wondering if now is a good time to buy a house or if you should wait until interest rates fall more significantly. When will mortgage rates finally drop back down near the 3% mark?

Read more: Want to buy a house before the end of 2025? Here’s what to know.

In 2020 and 2021, Americans witnessed record-low mortgage rates. The lowest 30-year fixed rate was 2.65% in January 2021, but rates hovered at or below 3% for a couple of years. However, home loan rates probably won’t drop back down to 3% — at least not anytime soon.

To understand why rates are unlikely to return to 3%, it is helpful to consider two key factors: the circumstances that initially drove the drastic drop in interest rates and the factors that are currently determining today's higher rates.

Learn more: Mortgage rate predictions for the next five years

Home loan interest rates reached historic lows in 2021 as the Federal Reserve aggressively cut rates to mitigate the effects of the COVID-19 pandemic.

The pandemic impacted the economy in several ways, including widespread unemployment and supply shortages. To encourage spending and avoid a major recession, the Fed began lowering the federal funds rate in March 2020, making it cheaper to borrow money as Americans faced job losses.

Although many factors influence home loan rates, mortgage rates typically follow the general direction of the federal funds rate. By late December 2020, the average rate for a 30-year mortgage was even lower than 3%, at 2.66%.

Dig deeper: How the Federal Reserve rate decision affects mortgage rates

Lower interest rates and pandemic-relief stimulus programs increased consumer demand, one of several factors that drove the inflation rate.

The Federal Reserve monitors this rate, which measures the price change for goods and services, aiming to keep it around 2% according to yearly changes in the price index for personal consumption expenditures (PCE).

By 2022, the PCE inflation rate was over 5%, and the Fed began a series of fed funds rate hikes to curb it. The central bank raised its rate 11 times combined in 2022 and 2023. Mortgage rates followed suit, peaking at 7.79% in October 2023 before hovering around 6.6% at the end of the year.

Many experts expect 30-year mortgage rates to stay above 6% in 2025, anticipating a slight drop if they fall at all. Rates may decrease more in 2026, but economists still expect them to remain above 6% for most, if not all, of next year.

Whether we see lower rates depends on several economic factors. Here are just a few.

Inflation: Higher inflation can lead to higher mortgage rates if the Federal Reserve responds with a rate hike or even by keeping the fed funds rate unchanged.

Unemployment: High unemployment can cause demand for homes to fall, which could lead to lower mortgage rates.

10-year Treasury yield: Mortgage rates tend to follow the direction of the 10-year Treasury yield. Unlike the fed funds rate, the 10-year yield is a greater indicator of rates on longer-term loans — like home loans. Generally, investors buy more Treasury bonds as a safety net during economic uncertainty, which lowers yields and, ultimately, mortgage rates.

Keep reading: When will mortgage rates go back down to 4%?

Buying a home generally makes more sense when it fits your budget and goals than if you try to time the real estate market.

"Finding the right time to buy is not a science, and there are a lot of factors beyond just rates buyers should consider,” Beverly Hankinson, mortgage loan advisor manager at Frost Bank, said via email. “A term that’s become popular is, 'date the rate, marry the house.' If the home checks all your boxes, buying could make sense, especially if you can refinance in the future."

Current homeowners should factor in more than the interest rate when considering a mortgage refinance.

"If you are currently locked into a higher mortgage rate, it could be a good opportunity to explore a refinance,” noted Hankinson. “However, refinancing comes with a cost, so it’s important to weigh your monthly savings against other factors, including how long you plan to stay in your home. For example, if you plan to move for more space in the next two to three years, it might not make sense to pay the refinancing costs."

Dig deeper: Do mortgage rates go down during a recession?

Although you can’t control when mortgage rates fall, there are steps you can take to ensure you get the lowest mortgage rate possible.

Boost your credit score: You’re more likely to get a lower interest rate with a higher credit score. Improve your score by making on-time payments on credit cards and other debts and resolving errors on your report.

Pay down debt: Reducing your debt lowers your debt-to-income ratio (DTI ratio), a factor mortgage lenders consider when determining your loan eligibility and what rate you qualify for.

Compare multiple lenders: Apply for preapproval with more than one mortgage lender to compare interest rates, repayment terms, and discounts.

Negotiate fees: Pay attention to closing costs and ask your loan advisor if there’s an opportunity to waive or reduce some fees.

Learn more: You locked in a low mortgage rate. Now you want to move — What should you do?

It’s unlikely you’ll see a 3% mortgage rate anytime soon. According to Freddie Mac, the average interest rate on a 30-year fixed-rate mortgage is well over 6%. Mortgage rates hit historic lows in 2021 due to the Federal Reserve’s response to the COVID-19 pandemic.

Some experts say mortgage rates could fall slightly in 2025, but don’t expect a significant drop in 30-year fixed-rate mortgages, which have lingered between 6% and 7% since the fall of 2022.

Timing the housing market can be difficult, especially when so many factors go into buying a home or refinancing. Generally, you should buy a house when you find the right one and it makes financial sense — you have enough saved for the down payment and can afford the monthly mortgage. Refinance when you can lower your interest rate or land better loan terms, like moving from an adjustable-rate to a fixed-rate mortgage.

Laura Grace Tarpley edited this article.