Will Mortgage Rates Go Down In January?

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Mortgage rate predictions January 2025

Mortgage rates shouldn’t change significantly this month from where they are now, and might not shift much throughout the year, either, says Greg McBride, CFA, Bankrate’s chief financial analyst.

Blame the combination of a still-strong economy, inflation fears and growing concerns about a rising federal deficit.

“In an environment where inflation is stubborn and economic growth is strong, there’s just not much to push long-term interest rates materially lower,” McBride says in his 2025 forecast.

So much for hopes that mortgage rates were headed back into the 5 percent range. The average 30-year mortgage rate began declining from 7 percent last summer, fell to as low as 6.2 percent in September, then quickly reversed course, tracking back above 7 percent by the end of 2024, according to Bankrate’s weekly lender survey. As of Jan. 8, rates had jumped to 7.08 percent.

Then there’s the Federal Reserve, which doesn’t directly set mortgage prices, but does influence them. The Fed cut its benchmark rate three times last year, and could do so again when policymakers meet at the end of this month.

Will mortgage interest rates go down again?

Possibly. McBride expects 30-year mortgage rates to retreat to 6.5 percent by the end of 2025 — but in the nearer term, he sees rates moving higher. “Bond yields are flirting with levels not seen since late 2023, pushing mortgage rates further above the 7 percent mark,” he says.

Meanwhile, Fannie Mae and the Mortgage Bankers Association predict 30-year rates to decrease to 6.2 percent and 6.4 percent, respectively.

“I don’t think we’re going to see mortgage rates fall as everyone hoped,” says Lisa Sturtevant, chief economist at Bright MLS, a large listing service in the Mid-Atlantic region. “It feels like rates are going to be well in the 6s. But that might not be as big an obstacle as we might have thought. There’s this anchoring going on where buyers and sellers are getting used to 7.”

Current mortgage rate trends

Higher mortgage rates have kept homeowners locked in to lower-cost loans. The median national home price clocked in at $406,100 in November, according to the National Association of Realtors.

What to do if you’re getting a mortgage this year

• Improve your credit score. A lower credit score won’t prevent you from getting a loan, but it can make all the difference between getting the lowest possible rate and more costly borrowing terms. The best mortgage rates go to borrowers with the highest credit scores, usually at least 780.
• Save up for a down payment. Putting more money down upfront can help you obtain a lower mortgage rate, and if you have 20 percent, you’ll avoid mortgage insurance, which adds costs to your loan. If you’re a first-time homebuyer and can’t cover a 20 percent down payment, there are loans, grants and programs that can help. The eligibility requirements vary by program, but are often based on factors like your income.
• Understand your debt-to-income ratio. Your debt-to-income (DTI) ratio compares how much money you owe to how much money you make, specifically your total monthly debt payments against your gross monthly income. Not sure how to figure out your DTI ratio? Bankrate has a calculator for that.

FAQ

• How are mortgage rates determined?

  It might seem like a bank or lender are dictating mortgage terms, but in fact, mortgage rates are not directly set by any one entity. Instead, mortgage rates grow out of a complicated mix of economic factors. Lenders typically set their rates based on the return they need to make a profit after accounting for risks and costs.

  The Federal Reserve doesn’t directly set mortgage rates, but it does set the overall tone. The closest proxy for mortgage rates is the 10-year Treasury yield. Historically, the typical 30-year mortgage rate was about 2 percentage points higher than the 10-year Treasury yield. That “spread” has been closer to 3 percentage points as of late.

• When should I refinance my mortgage?

  Deciding when to refinance is based on many factors. If rates have fallen since you originally took out your mortgage, refinancing might make sense. A refi can also be a good idea if you’ve improved your credit score and could lock in a lower rate. A cash-out refinance can accomplish that as well, plus give you the funds to pay for a home renovation or other expenses.