Ever since mortgage rates began climbing from below 3% in 2021 to above 7% in 2022, interest in the search query “When will mortgage rates go down?” has surged, according to Google Trends. Three years later, many prospective homebuyers and homeowners looking to refinance are still asking the same question.
At the beginning of 2023, some forecasters were expecting mortgage rates to dip below 5% by year-end. Instead, rates actually shot up to nearly 8% by September 2023. In that time, many homebuyers were told they could “buy now and refinance later” to a lower mortgage rate, while others were simply waiting for rates to fall before buying a home.
Clearly, the forecasts aren’t always right. Here’s why it’s harder to predict mortgage rate trends than you might think — and what you should know about mortgages before deciding to buy or refinance.
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What Influences Mortgage Rates?
More than half of recent homebuyers think that the Federal Reserve sets mortgage rates, according to a September 2025 U.S. News survey. But that’s not true. In fact, the short-term federal funds rate has a minimal impact on interest rates on long-term mortgages.
The average 30-year mortgage rate more closely tracks the yield on 10-year Treasury bonds. To better understand what moves mortgage rates, look to the bond market.
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Bond yields are influenced by a number of economic factors, which is one reason it’s so difficult to predict where mortgage rates are headed over the next weeks, months or years. Here are a few things outside of the borrower’s control that could impact the mortgage rate they ultimately receive:
— Inflation expectations. Investors demand higher yields on U.S. Treasuries when inflation is high. Likewise, mortgage lenders will charge higher interest rates to offset inflation that eats into their profits. Mortgage rates are higher when inflation is high, and they tend to be lower when inflation falls.
— Economic growth. Investors look to the Bureau of Labor Statistics to measure job growth and unemployment rates, as well as the Bureau of Economic Analysis to measure gross domestic product, or GDP. When the economy is showing signs of weakness, investors often turn to the safety of the bond market, which drives interest rates lower.
— Monetary policy. While the Federal Reserve doesn’t set mortgage rates, the central bank’s policy direction can influence the path forward for interest rates. One tool that the Fed has at its disposal is the ability to buy up mortgage-backed securities, which can drive mortgage rates lower.
— Fiscal policy. While the political party in power also doesn’t set mortgage rates, changes in fiscal policy by the legislative and executive branches can influence where rates are headed. Higher levels of government debt can raise bond yields to attract investors, which also puts upward pressure on mortgage rates.
When forecasters are forming their expectations for mortgage rates, they’re also predicting a path forward for the economy at large, including inflation, employment and GDP growth. So if economists are wrong about the path forward for inflation, then they’ll be wrong about mortgage rates.
One reason mortgage rates stayed higher for longer than previously expected in the first half of 2025 is that U.S. fiscal policy changed greatly as a result of the 2024 presidential election. The Trump administration’s tariffs were higher than some economists had planned for, so they began baking higher inflation expectations into their mortgage rate forecasts.
Now that inflation has settled a bit — and more importantly, that the job market has shown signs of cooling — those mortgage rate predictions are coming down a bit.
Don’t Center Your Homeownership Plans Around Speculation
If you’re exhausted trying to wrap your head around the section above, that’s understandable. Trained economists have trouble forecasting the path forward for mortgage rates with accuracy, so it’s a tall order for the average consumer to do the same.
Fed Chair Jerome Powell says it best: “Forecasts are highly uncertain. Forecasting is very difficult. Forecasters are a humble lot with much to be humble about.”
While mortgage rate forecasts can be helpful in informing one aspect of homebuying, don’t get tunnel vision. Mortgage rates are just one part of the housing affordability equation. You’ll also need to consider a lender’s fees and other closing costs — and even more importantly, your homebuying budget.
As a homebuyer or homeowner, larger mortgage rate trends are out of your control. Instead, you could focus on things that are within your control, like determining how much house you can afford. To get a better idea of your home price budget, get preapproved with a few mortgage lenders.
But just because you’ve been preapproved to borrow $400,000 doesn’t mean you should automatically go looking for homes at that price point. Sometimes, the mortgage preapproval amount can still put too much pressure on your budget. Generally, your housing costs — so your mortgage payment, including taxes and insurance — should take up no more than 28% of your pre-tax monthly income.
So if you’re gearing up to buy a home, set your sights on finding a home you can see yourself living in for years to come. And if you’re waiting to refinance to a lower rate, calculate your break-even point, which is the amount mortgage rates would need to fall to offset the up-front cost of refinancing.
Finally, research mortgage refinance lenders, so you’re ready to strike when rates do fall enough to make refinancing worthwhile.
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When Will Mortgage Rates Go Down? The Answer’s Not As Simple As You Think originally appeared on usnews.com
