Editorial Staff
Mortgage rates have been relatively high throughout 2024, though there’s been a slight decrease recently. In September, 30-year rates dropped to 5.74%, the lowest level since early 2023. However, since then, rates have risen, averaging about 6.56% in November.
Looking ahead to 2025, mortgage rates are expected to ease, provided inflation remains controlled and the Federal Reserve can continue to lower the federal funds rate. Fannie Mae’s most recent housing forecast predicts 30-year rates will hit 6.30% by the end of 2025, a significant revision from its earlier prediction that rates would drop into the 5% range.
However, even with this drop, some buyers might still struggle to afford their mortgage payments. If you’re planning to buy a house soon, saving for a larger down payment and adjusting your budget to a lower price range may help make homeownership more attainable.
Mortgage Rates Overview: Current Trends
Here’s a snapshot of current mortgage rates, accurate as of November 30, 2024:
| Mortgage Type | Average Rate |
| 30-Year Fixed | 6.30% |
| 20-Year Fixed | 6.14% |
| 15-Year Fixed | 5.73% |
| 7/1 ARM | 6.75% |
| 5/1 ARM | 6.65% |
| 30-Year FHA | 5.58% |
| 30-Year VA | 5.61% |
For homeowners looking to refinance, the current refinance rates are as follows:
| Mortgage Type | Average Rate |
| 30-Year Fixed Refinance | 6.41% |
| 20-Year Fixed Refinance | 6.11% |
| 15-Year Fixed Refinance | 5.84% |
| 7/1 ARM Refinance | 6.27% |
| 5/1 ARM Refinance | 6.08% |
| 30-Year FHA Refinance | 5.50% |
| 30-Year VA Refinance | 5.86% |
What’s Driving Mortgage Rates?
Mortgage rates are influenced by various factors, such as overall economic trends, Federal Reserve policy, and even your financial profile. While you can’t control these macroeconomic factors, you can improve your credit score, reduce debt, and save for a larger down payment to improve your chances of securing a lower rate.
How the Federal Reserve Affects Mortgage Rates
The Federal Reserve doesn’t directly set mortgage rates but impacts them through its decisions on the federal funds rate. Over the past couple of years, the Fed raised interest rates significantly to curb inflation. While inflation is now slowing, it remains above the Fed’s 2% target.
Mortgage rates often follow the direction of the Fed’s actions, as investors adjust expectations for the broader economy. In response to slowing inflation, the Fed started lowering rates in September and again in November, which could gradually bring mortgage rates down in 2025. However, these rates are unlikely to return to the historic lows we saw in 2020 and 2021 when 30-year fixed rates were under 3%.
Will Mortgage Rates Continue to Drop?
Rates have been on the higher end this year, but predictions for 2025 are more optimistic. While rates are not expected to return to the rock-bottom levels seen during the pandemic, they should ease somewhat, potentially stabilizing in the mid-6% range.
Here’s a quick look at what the future holds for mortgage rates:
| Year | Predicted 30-Year Mortgage Rate |
| 2024 | Around 6.56% |
| 2025 | Around 6.30% |
Should You Refinance Now or Wait?
If you currently have a high-interest mortgage, refinancing could help lower your payments — but with rates expected to drop further, you might want to wait. Refinancing now could save you money, but if you can wait a little longer, you might get an even better deal. The key is to consider your financial situation: how much would it cost to refinance, and how much would you save in the long run?
How Mortgage Interest Rates Work?
When you take out a mortgage, the interest rate is the amount you pay to borrow money from the lender. Over time, a portion of your payment goes toward paying off the loan, while another portion covers the interest. This process is called amortization.
For example, on a $300,000 loan with a 6.5% interest rate, your monthly payment would be approximately $1,896. In the early years of the loan, most of your payment goes toward interest, while later payments go more toward the principal balance.
Example Amortization Breakdown
| Month | Total Payment | Interest Payment | Principal Payment | Remaining Loan Balance |
| 1 | $1,896 | $1,625 | $271 | $299,729 |
| 20 | $1,896 | $905 | $992 | $256,231 |
Over time, as the loan balance decreases, your interest payments shrink and more of your payment goes toward reducing the principal.
How to Shop for the Best Mortgage Rate?
To get the best deal, it’s crucial to shop around for mortgage rates. Experts recommend getting quotes from at least three lenders to compare rates. You can apply for preapproval early in the process to get an estimate, or you can apply for regular approval once you’ve found a home.
When shopping for a mortgage, it’s important to look beyond the interest rate. Consider any fees associated with the loan and weigh them against the potential savings. Additionally, think about other factors such as customer service and any available down payment assistance programs.
By understanding how mortgage rates work and the factors that influence them, you can make more informed decisions when buying or refinancing a home.
