If you’re shopping for a home and need financing, you’re probably wondering when mortgage rates will drop. Since the start of the year, rates for the benchmark 30-year fixed-rate mortgage loan have hovered from a high of 7.04% to as low as 6.62%, according to Federal Reserve Bank of St. Louis data. That’s way up from the record low of 2.65% marked in January 2021.
It’s natural to ask: Why have interest rates remained so high? Are mortgage rates going up in the weeks ahead? And where do the experts believe interest rates will land in the near future? Read on for answers to these and other questions.
Why mortgage rates are still high despite Fed interest rate cuts
Interest rates remain high for several reasons driven by macroeconomics, investor sentiment, and other factors. Contrary to popular belief, the Fed doesn’t directly control mortgage rates. Interest rates on mortgage loans are more dictated by investment in bonds and mortgage-backed securities than the Federal Reserve raising or lowering interest rates.
“Mortgage rates don’t just move based on the Federal Reserve’s decisions,” explains Nadia Evangelou, senior economist and director of real estate research for the National Association of Realtors. “Mortgage rates usually follow the lead of the 10-year Treasury yield, which reflects what investors think about inflation, the economy, and government spending. If investors believe inflation will stay elevated or government borrowing will remain high, they will demand higher returns – keeping mortgage rates elevated.”
Dennis Shirshikov, a professor of economics and finance at City University of New York/Queens College, points out that while the Fed can influence borrowing costs, other economic conditions – including inflation in market expectations – play major roles.
“Inflation pushes the price of borrowing higher because lenders want to earn more to compensate for the diminishing worth of money over time. And the bond market, where most mortgages are benchmarked, has also witnessed increasing yields, which have lifted mortgage interest rates for home loans,” he notes.
Key factors influencing mortgage rates right now
So, why are interest rates going up today? Let’s take a closer look at four major contributing factors that help explain why mortgage rates are rising across the country – in some areas higher than others.
Economic strength and inflation pressure
A robust economy can drive up demand for goods, services, and housing, leading to inflation. Even though inflation has cooled from its peak, it’s still hovering around the Fed’s 2% target.
“The economy’s resilience, with steady job growth in consumer spending observed, keeps inflation pressures alive. Additionally, recent tariff policies have introduced new uncertainties, potentially fueling inflation further,” says Ryan Zomorodi, co-founder of RealEstateSkills.com. “This complex backdrop makes the Fed cautious about cutting interest rates, leading to mortgage rates remaining higher for longer.”
Put another way, a solid market and resilient consumer spending have kept inflation stickier than expected, making it more difficult for interest rates to come down, per Evangelou.
Bond market dynamics
Remember: Mortgage interest rates are linked to the yields on long-term government bonds – particularly the 10-year Treasury note. As bond prices fall, their yields rise, and those higher yields are evident in today’s amplified mortgage rates.
“The bond market has been absolutely wild lately,” personal finance expert Andrew Lokenauth says. “I’ve watched the 10-year Treasury yield hit 5% in October, which directly pushed mortgage rates higher. Plus, there’s about $4 trillion in Treasury debt that needs to be refinanced this year. That’s a ton of supply hitting the market.”
Truth is, investors are nervous about inflation, government spending, and what’s coming next.
“This is basically the market saying, ‘We’re not sure where this is headed,’ so they demand a higher return to lend money. That’s why mortgage interest rates remain elevated even though inflation has cooled,” Zomorodi continues.
Government debt and spending
High government spending and rising national debt can also lead to increased mortgage rates. Uncle Sam racking up red ink quickly – the current national debt is over $36 trillion – has real consequences.
“To cover the tab, the Treasury must flood the market with bonds, and when there is more supply than demand, yields get pushed up. And since mortgage interest rates move in line with Treasury yields, they also climb,” says Zomorodi.
Shirshikov agrees, adding that when the government borrows more money, it competes with the private sector for capital, pushing up interest rates to attract investors.
“The long-run consequence of running up more debt can be higher inflation expectations, further compounding the problem,” he says.
Housing supply and demand
The Consumer Price Index (CPI) measures inflation by monitoring how the average prices of a consistent set of goods and services change over time, offering insight into the cost of living for an average household.
“Home prices are not included in the CPI, but they do influence it. When home prices rise, rents often follow – and rent is a big part of inflation,” Evangelou says. “So, tight housing supply and strong demand can keep inflation sticky, which puts upward pressure on mortgage rates.”
Consider that limited housing supply means higher home prices, which also affects mortgage interest rates since lenders price in this kind of risk.
“In my area, there’s maybe one to two months' worth of inventory, when we should have six months of supply for a balanced market,” Lokenauth says.
What this means for homebuyers
Fewer homes to purchase, continued upward pressure on home prices, and costly mortgage interest rates collectively work to put homebuying out of reach for many nowadays.
“Current elevated mortgage rates are making homeownership less affordable for borrowers,” says Shirshikov. “Monthly payments are much higher than when interest rates were lower, so buyers are either moving into smaller homes or reducing their budgets. Buyer sentiment has been hurt as well, as many prospective purchasers are reluctant to pay higher payments or be in long-term debt at higher interest rates – also leading to a slowdown in housing.”When mortgage rates leap from below 3% to 7% or higher, that equates to hundreds more per month on a typical home loan.
“It’s no surprise that mortgage applications are down because people simply can’t afford what they could a year or two ago,” Zomorodi explains.
Evangelou echoes those sentiments.
“Many homebuyers are priced out of the housing market, while existing homeowners stay put to preserve their low mortgage rates,” she says.
On a bright note, strong wage growth has helped offset some of the affordability challenges, and mortgage payments as a share of income are actually lower than a year ago, she adds.
What borrowers can do to navigate high mortgage interest rates
To better navigate this challenging rate climate and improve your odds of finding an affordable home, it pays to shop around and compare lenders carefully. Better offers several financing options for homebuyers worth checking out, along with a mortgage rate tracker and a mortgage calculator that can help you determine your monthly payments.
“You might want to consider an adjustable-rate mortgage or borrowing less to keep monthly payments at a manageable level,” Shirshikov recommends.
Before loan shopping, take the time to learn how mortgages work and the difference between a mortgage APR and interest rate, and work hard to improve your creditworthiness, which can help you qualify for more attractive mortgage interest rates.
“Try to boost your credit score above 740 if possible, which can save thousands in interest,” Lokenauth advises.
If you can afford the monthly payment, have stable earnings, and locate a property that fits your needs, don’t be afraid to pull the trigger.
“Don’t wait around hoping for 3% mortgage rates again. They might not come back for a long time. In the meantime, home prices could climb even higher,” Zomorodi cautions.
Keep in mind that you can always refinance your mortgage loan later, “so consider buying a home to start building housing equity now, instead of waiting for mortgage rates to fall,” suggests Evangelou.
Refinance opportunities when mortgage rates fall
One way borrowers can manage high costs today is by planning to refinance when mortgage rates come down. Lenders, like Better, offer streamlined refinance options that let you replace your current home loan with a new one at a lower mortgage rate.
Even if you're locking in a 7% mortgage rate now, refinancing to a 5.5% rate in a year or two could significantly reduce your monthly payments and total interest paid over time. Make sure to monitor mortgage interest rates regularly, and work with a trusted lender to stay prepared.
Are mortgage rates going down in 2025?
Ask the experts for their U.S. mortgage rates predictions on home loan rates and most will tell you that they are projected to stay north of 6% for the foreseeable future.
“I expect the 30-year fixed mortgage rate to average between 6.6% and 6.7% through midyear, then gradually ease to around 6.4% by year’s end,” Evangelou says.
Shirshikov, meanwhile, expects mortgage rates to modestly recede somewhere between 6.5% to 6.25% by the close of the year.
“This prediction reflects the anticipation of a cooling economy and the potential easing of inflation pressures along with more stability in the bond market. However, these estimates may be affected by geopolitical risks and other external conditions,” he notes.
Others have a slightly rosier outlook.
“Based on economic data I’m seeing, I expect the 30-year fixed rate to drop to around 6.4% by mid-year but down to 5.8% by the end of 2025 as inflation continues cooling and the Fed potentially cuts interest rates further,” says Lokenauth.
Zomorodi anticipates mortgage interest rates possibly dipping to as low as 5.75% by late 2025, assuming bond yields come down and the market remains steady.
“But sticky inflation, job market surprises, or geopolitical flareups could keep mortgage rates higher for longer,” he warns.