Why Are Mortgage Rates So High, and How Long Will They Stay Up? (2024)

FAQs

Why Are Mortgage Rates So High, and How Long Will They Stay Up? ›

Mortgage rates have soared in recent weeks, as stubbornly high inflation has all but erased hope that the Fed would begin cutting interest rates this summer. As a result, buyers will likely face high mortgage rates throughout the all-important spring home buying season.

Mortgage rates are expected to decline when the Federal Open Market Committee cuts 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.

“Today's mortgage rates reflect higher yields in the bond market, but also a relatively wide premium spread between 10-year U.S. Treasury notes and mortgage rates,” says Rob Haworth. The spread has recently been nearly twice what it was in early 2022, contributing to more burdensome mortgage rates.

It's possible that rates will one day go back down to 3%, though if current trends hold that's not likely to happen anytime soon.

The bottom line. Today's elevated mortgage rate environment isn't preferable for homebuyers, but it doesn't mean that you should refrain from acting, either. If you discover your dream home, can afford the interest rate, find an affordable house, or have an alternative to rent, it can be worth it for you now.

If those projections remain and the Fed begins to lower its key rate, mortgage rates will presumably follow suit. Sunbury predicts the Fed will cut rates by between 100 to 125 basis points starting in May or June of 2024. “This would bring the policy rate to 4% to 4.25%,” Sunbury explains.

That means the mortgage rates will likely be in the 6% to 7% range for most of the year. Many are speculating about where rates will go in the next year or two. Most forecasting models predict that mortgage rates will remain above 6% in 2024, potentially dropping further in 2025.

Focus on the monthly payments

For example, financing a $440,000 home with a 20% down payment at a 7% mortgage rate would mean a monthly mortgage payment of roughly $2,300, while a 6% mortgage rate would save a buyer about $200 a month, she said.

The benefit of a fixed-rate mortgage is that your interest rate stays consistent. But your monthly mortgage bill can still change — in fact, it generally fluctuates at least a little bit every year. Rising home values and insurance premiums have caused unusually dramatic increases for some homeowners in recent years.

How much will mortgage rates drop in 2024? ›

While McBride had expected mortgage rates to fall to 5.75 percent by late 2024, the new economic reality means they're likely to hover in the range of 6.25 percent to 6.4 percent by the end of the year, he says.

By the final quarter of 2025, Fannie Mae expects that to slide to 6.0%. Meanwhile, Wells Fargo's model expects 5.8%, and the Mortgage Bankers Association estimates 5.5%. ResiClub takes all forecasts with a grain of salt.

Utilize gift funds. Some home buyers are lucky enough to receive cash as a gift from their parents, grandparents or other family members when they buy a home. If you received this type of gift, you could use those funds to increase your down payment or to pay for mortgage points to buy down your rate.

For most homebuyers, a down payment of less than 20 percent will generally cost more money in the long run. But if saving up that kind of money will keep you from ever owning a home, it's worth considering.

Rising mortgage interest rates often mean a smaller pool of buyers who can afford the price you want. Selling a home isn't free, so if you can't maximize your price, you might want to wait. If you recently refinanced your mortgage, it may not make financial sense to sell just yet.

The average 30-year fixed mortgage rate as of Thursday was 6.99%. By the final quarter of 2025, Fannie Mae expects that to slide to 6.0%.

The median estimate for the fed-funds rate target range at the end of 2025 moved to 3.75% to 4%, from 3.5% to 3.75% in December. For the end of 2026, the median dot now shows a target range of 3% to 3.25%, versus 2.75% to 3% three months ago.

As you can see, there is no consensus among the experts on what will happen to mortgage rates in the next 10 years. Some expect them to rise significantly, while others expect them to fall moderately.

The benefit of a fixed-rate mortgage is that your interest rate stays consistent. But your monthly mortgage bill can still change — in fact, it generally fluctuates at least a little bit every year. Rising home values and insurance premiums have caused unusually dramatic increases for some homeowners in recent years.