Here's what mortgage interest rates could look like by the end of 2025

Mortgage rates just hit a multi-year low — and they may not be done falling yet. MF3d/Getty Images

After years of elevated borrowing costs, mortgage rates have finally started moving lower — and the change is already rippling through the housing market. The average 30-year fixed-rate mortgage loan has dropped to 6.13%, marking its lowest point in three years. That's a meaningful decline from the 7% (and higher) levels that defined much of 2023 and 2024, and it's easing homebuying costs while offering many would-be buyers a reason to look at homes that recently felt out of reach.

This dip in mortgage loan rates isn't just good for homebuyers, though. It has also energized existing homeowners, as evidenced by the surge in both purchase and refinance applications that occurred when rates dipped. Lower rates translate into more affordable monthly payments, so buyers and homeowners are now working to save money on borrowing costs and capitalize on the shifting rate landscape. 

The latest shift in mortgage rates also offers a glimpse of what could be ahead for those who've been sitting on the sidelines, whether they're saving for a down payment or holding off on refinancing. But with more potential rate drops on the horizon, the key question now is: how much lower will mortgage rates drop before the year ends? That's what we'll explore below.

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What will mortgage interest rates could look like by the end of 2025?

If you've been hoping mortgage rates could drop further before the close of 2025, it looks like there's a chance that could happen. While the rate environment can shift quickly, right now, markets are betting that the Federal Reserve isn't finished with rate cuts just yet. Right now, the CME Group's FedWatch tool places the odds of another quarter-point cut at the Fed's October meeting at more than 91%. If policymakers follow through, mortgage rates — which aren't directly impacted by Fed action but are still influenced by it — could drop even further when the Fed meets next month.

And the October Fed meeting isn't the only opportunity on the horizon for lower borrowing costs. Future inflation data will be pivotal in the final stretch of 2025. If consumer price growth eases and moves toward the Fed's 2% target, policymakers may have room for another reduction before year-end. Each 25-basis-point move may not seem huge, but even modest cuts can translate into hundreds of dollars in monthly savings on a typical home loan.

So, where could rates actually land? If the Fed cuts rates again in October, and if the inflation data moves in favor of borrowers, the 30-year fixed mortgage rate could end 2025 in the high 5% range, potentially even between 5.5% and 5.75%. Remember, though, that's if the Fed delivers multiple cuts and inflation trends cooperate. That rate would still be higher than the record lows seen during the pandemic, but meaningfully below the rates that sidelined buyers in recent years. On the other hand, if inflation remains sticky or climbs upward even further, rates could stay closer to their current average, meaning they'd hover closer to 6% into early 2026.

Here's what that could look like in practice. On a $500,000 30-year fixed mortgage, a borrower paying today's average rate of 6.13% would owe roughly $3,040 per month in principal and interest each month. If rates were to drop to 5.75% by the end of the year, though, that same mortgage loan would cost about $2,918 monthly. That's a savings of nearly $120 every month — or more than $40,000 over the life of the loan.

However, it's crucial to manage your expectations about how dramatic these rate declines, if they happen, might be. The possibility of sub-6% mortgage rates is low overall, given persistent concerns about the economy, sticky inflation and federal deficit spending. While Fed policy may provide downward pressure, these and other factors could limit how far rates can actually fall before the close of 2025. 

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When should you lock in a mortgage rate?

For borrowers, the mortgage rate lock timing question is tricky. Rates today are already significantly lower than they were earlier this year. If you're actively house-hunting or eligible for a refinance, capturing a rate in the 6.13% range could mean locking in a monthly payment that's hundreds of dollars cheaper than it would have been at 7% or higher. However, if you have some flexibility, it might pay to wait. With at least one more Fed cut looking likely this year, there's a chance rates could drift lower still. And even a small additional drop could make a sizable difference in affordability over the life of a loan.

Still, no one can perfectly time the market. Rates are influenced by a wide range of factors, from inflation reports to global bond markets, and they can shift quickly. That's why many experts recommend weighing your timeline, financial stability and housing needs first. And, if you've found a home that fits your budget comfortably at today's rate, holding out for an extra quarter-point decline may not be worth the risk of missing out.

The bottom line

Mortgage rates have taken a welcome turn lower, falling to their lowest levels in three years. More relief may be on the horizon if the Fed follows through with additional rate cuts. That trajectory could open the door for more buyers and homeowners to make moves they've been postponing. That said, the timing matters. If you're ready to buy or refinance, today's rates already represent a meaningful improvement from where they've been. If you can afford to wait, though, you may benefit from further declines, should all of the right economic factors align.