When should interest rates drop?
Mortgage rates are expected to decline when Federal Reserve policymakers cut the benchmark interest rate, which is likely to happen in the second half of 2024. But as long as inflation runs hotter than the Fed would like, rates will remain elevated at their current levels.
The latest forecasts expect mortgage rates to go down in 2024 and 2025, with experts predicting that 30-year rates could fall somewhere between 5.9% and 6.1% by the end of this year.
The U.S. Federal Reserve will likely cut interest rates by a cumulative 0.75 percentage points to 1 point in 2024, investment strategists said Wednesday. The Fed will likely achieve a so-called “soft landing” as it navigates interest rate policy, they said.
In summary, it is unlikely that mortgage rates in the US will ever reach 3% again, at least not in the foreseeable future. This is due to a combination of factors, including: Higher Inflation: Inflation is currently at a 40-year high in the US, and the Federal Reserve is raising interest rates to combat it.
Projected Interest Rates in the Next Five Years
ING's interest rate predictions indicate 2024 rates starting at 4%, with subsequent cuts to 3.75% in the second quarter. Then, 3.5% in the third, and 3.25% in the final quarter of 2024. In 2025, ING predicts a further decline to 3%.
According to their predictions based on recent data, Trading Economics anticipates the interest rate to descend to 4.25% in 2024 and 3.25% in 2025. Their forecast suggests that the Fed may need to reduce interest rates in response to a slowdown in economic growth and a decline in inflation.
| Product | Interest rate | APR |
|---|---|---|
| 30-year fixed-rate | 6.773% | 6.856% |
| 20-year fixed-rate | 6.621% | 6.726% |
| 15-year fixed-rate | 6.067% | 6.208% |
| 10-year fixed-rate | 5.821% | 6.023% |
Mortgage rates are going to stay above 6% through 2025, according to estimates from Goldman Sachs. Goldman said the decline in mortgage rates should offer marginal improvements in housing affordability. The average 30-year mortgage rate fell to 6.62% last week after hitting a cycle-high of 7.8%.
If all goes well, by the time 2025 comes around, we could see mortgage rates closer to 6%, or maybe even lower. But, unfortunately, there's no guarantee.” “I expect we will end the year with rates at about 6% to 6.2% -- much higher than during the pandemic but still relatively low by historical standards.”
Fannie Mae expects mortgage rates to decline gradually over the next two years, reaching 6.9% for the 30-year mortgage by 2025. The slow decline in rates is expected to trigger a modest rebound in home sales, according to its latest economic forecast report.
Will interest rates ever drop again?
Mortgage rates are expected to decline later this year as the U.S. economy weakens, inflation slows and the Federal Reserve cuts interest rates. The 30-year fixed mortgage rate is expected to fall to the low-6% range through the end of 2024, dipping into high-5% territory by early 2025.
Current mortgage interest rate trends
Meanwhile, the average 15-year fixed mortgage rate decreased from 6.29% to 6.26%. After hitting record-low territory in 2020 and 2021, mortgage rates climbed to a 23-year high in 2023. Many experts and industry authorities believe they will follow a downward trajectory into 2024.
Mortgage rates change all the time. So a good mortgage rate could look drastically different from one day to the next. Right now, good mortgage rates for a 15-year fixed loan generally start in the low-6% range, while good rates for a 30-year mortgage typically start in the high-6% range.
Despite remaining at elevated levels, most housing market experts anticipate mortgage rates to recede over 2024, especially once the Federal Reserve begins its expected interest rate cuts. But whether lower rates will create a meaningful shift in home affordability remains to be seen.
According to the BoE, interest rates are likely to come down to about 5.1% by the end of 2024, going further down to 4.5% in 2025 and 4.2% in 2026. Analysts don't provide UK interest rate forecasts for the next 10 years due to the complexity of factors that might significantly influence the future rate.
The 10-year treasury constant maturity rate in the U.S. is forecast to decline by 0.8 percent by 2026, while the 30-year fixed mortgage rate is expected to fall by 1.6 percent. From seven percent in the third quarter of 2023, the average 30-year mortgage rate is projected to reach 5.4 percent in 2026.
For people looking to buy a home, a recession can bring some advantages. When the economy is not doing well, home prices often drop, which can be good news for those who want to find a good deal; plus, during recessions, mortgage rates usually stay low, meaning buyers can get a home with lower monthly payments.
Legally speaking, there's no limit to how many times you can refinance your mortgage, so you can refinance as often as it makes financial sense for you. Depending on your lender and the type of loan, though, you might encounter a waiting period — also called a seasoning requirement.
The ESR Group expects mortgage rates to decline in 2024, ending the year below 6 percent. The lower rate environment is expected to boost refinance volumes, which are already on the upswing, as evidenced by the recent uptick in Fannie Mae's Refinance Application-Level Index, to nearly double their 2023 levels in 2024.
The average 30-year fixed rate reached an all-time record low of 2.65% in January 2021 before surging to 7.79% in October 2023, according to Freddie Mac.
Who has the highest interest rates right now?
- Poppy Bank – 5.50% APY.
- My Banking Direct – 5.35% APY.
- BrioDirect – 5.35% APY.
- Vio Bank – 5.30% APY.
- Ivy Bank – 5.30% APY.
- TAB Bank – 5.27% APY.
- TotalDirectBank – 5.26% APY.
- Jenius Bank – 5.25% APY.
- Better, 3.89%
- Bank of America, 4.20%
- Citibank, 4.23%
- Amerisave, 4.33%
- DHI Mortgage Company, 4.34%
- PNC Bank, 4.35%
- Home Point Financial, 4.35%
- Navy Federal Credit Union*, 4.38%
Yields are expected to remain at the highest levels in over a decade despite two rate cuts from the Fed, McBride says. The average yield on a 1-year certificate of deposit (CD) should fall to 1.15 percent nationally in the year ahead from its current 1.77 percent level, according to McBride's 2024 forecast.
Boost your credit score
Increasing your credit score, even by a small amount, can help you reduce the cost of buying a home. A difference of a few points can sometimes mean lower mortgage rates that save buyers thousands of dollars over time.
Experts say slowing inflation and the Fed's projected interest rate cuts should help push mortgage interest rates down to around 6% by the end of 2024, but that will depend on incoming economic data. Over 82% of homeowners currently have interest rates below 5% on their property.
