Will Mortgage Rates Get Better in 2025? Here's What to Expect

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Elevated mortgage rates have made it difficult for buyers to move forward with home purchases. That's because on top of those higher rates, home prices are also up on a national scale.

But there's a good chance that mortgages will be less expensive to sign in 2025. The question is, how low will they go?

Downward movement is expected

As of this writing, the average rate on a 30-year mortgage is 6.47%. That's actually a notable drop from recent levels. Mortgage rates aren't set by the Federal Reserve directly. But when the Fed lowers its benchmark rate (the federal funds rate), mortgage rates tend to follow suit.

The Fed is expected to make its first rate cut before the end of 2024 and then continue with additional cuts in response to cooling inflation. This means that by 2025, mortgage rates could be quite a bit lower -- and buyers could be in for major relief.

To be clear, though, buyers should not expect the record-low mortgage rates that were available in 2020 and 2021. Back then, you could sign a 30-year loan at or below 3%, but we're nowhere close to getting back to that level.

A best-case scenario probably has mortgage rates dipping into the 4% range by the end of 2025. But rates in the 5% range are more likely.

Buyers also shouldn't necessarily expect sub-6% mortgage rates at the start of 2025. It may take some time to get there since the Fed is expected to cut its benchmark interest rate gradually.

How to get the best mortgage rate

If you're trying to borrow to buy a home, you of course want the most competitive mortgage rate you can snag. That translates to lower monthly payments.

One of the most important things you can do to score a lower interest rate on a mortgage is to boost your credit score. That score tells lenders how likely you are to repay your loan on time, so the higher it is, the more you might be rewarded in the form of a lower rate.

It's also a good idea to shop around for a mortgage. It may be that one lender is willing to offer you a 6.45% mortgage, while another comes through with an offer of 6.3%. Apply with a bunch of lenders to see what offers you get, but aim to do so within two weeks if possible.

When you apply for a loan, it counts as a hard inquiry on your credit report and can drag your credit score down by a few points. A single hard inquiry is generally no big deal, but a series of them could cause more credit score damage. But if you apply for the same type of loan multiple times within a two-week time frame, all of those applications will generally be considered a single hard inquiry, minimizing credit score damage.

Finally, you should know that lenders commonly offer much lower rates on 15-year loans than on 30-year loans. A 15-year mortgage will leave you with higher monthly payments, and those may not be manageable at a time when home prices are up.

But run the numbers based on your income and estimated home purchase price, because if you can swing those higher payments each month, you could save a lot of money of interest in the long run.

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