Mortgage Rate Outlook: Our predictions for the Coming Years
The conversation around interest rates, inflation, and mortgage costs is heating up again. Many consumers are closely watching the Federal Reserve and wondering what’s next for borrowing costs. Here’s my take on what’s likely to happen and how it could impact mortgage rates over the next couple of years.
Short-Term Outlook: 2025
Tariff revenue combined with stronger consumer spending should help ease inflationary pressures this year. With that backdrop, I expect the Federal Reserve to lower interest rates twice in 2025.
However, it’s important to note that the market has already priced in these anticipated cuts. In other words, the impact of these moves on mortgage rates may not be as significant as some consumers hope. Many people assume that Fed rate cuts automatically translate into much lower mortgage rates, but that’s not always the case. Mortgage pricing is tied more directly to long-term bond yields, and those yields already reflect much of what’s expected from the Fed.
The Powell Factor: Leadership Change in 2026
Looking ahead, the bigger shift may not come from the Fed’s incremental cuts, but from its leadership. Chair Jerome Powell’s term ends in May 2026. If he is replaced by a more dovish governor—as many anticipate—the Fed could adopt a more accommodative stance toward interest rates.
This change in leadership has the potential to create real momentum for lower long-term borrowing costs, especially if inflation continues trending lower and economic growth remains steady.
Mortgage Rate Predictions Through 2026
Based on these factors, I believe mortgage rates will gradually decline but not in the sharp, immediate way that some predict. Instead, we may see a slow drift downward through 2025, with the more meaningful changes coming after Powell’s successor takes over.
By the end of 2026, I expect mortgage rates to settle in the high 4% range—a level that would be very welcome for homebuyers compared to recent years.
What This Means for Buyers and Homeowners
For buyers: Waiting for a massive drop in rates this year may lead to disappointment. While rates could inch lower, affordability gains won’t be dramatic until leadership changes at the Fed.
For current homeowners: If you’re thinking about refinancing, timing will matter. Some opportunities may open up later in 2025, but the most attractive refinance wave may arrive in 2026.
Final Thoughts
The path to lower mortgage rates won’t be overnight—it will be a process shaped by both market expectations and Fed leadership. For now, the best strategy is to stay informed, work with a knowledgeable lender, and position yourself to act when opportunities arise.
At First Team Lending, we’re committed to helping clients make smart mortgage decisions, no matter where rates stand. If you’re planning to buy or refinance, let’s talk about your best options today.