Back in January, Fannie Mae’s economists figured the 30-year mortgage would average about 6% this year and next, according to trade publication Scotsman Guide. That was the light at the end of the tunnel a lot of homebuyers were counting on.
That light just went out.
In its latest forecast, Fannie now expects the 30-year fixed to average 7.4% for the rest of this year and 7.5% every quarter next year, CNBC reports. A month ago, the same forecasters had 6.8% penciled in for this quarter and 6.7% for 2027.
Rates are already there. Freddie Mac’s weekly survey put the average 30-year at 7.40% as of Oct. 15, up from 6.27% a year earlier.
Here’s why this matters more than the usual forecast shuffle: Plenty of people bought homes, or plan to, on the theory that they’d “marry the house and date the rate.” In other words, overpay now and refinance when rates fall.
Fannie’s numbers suggest that refinance wave may not show up. Its economists expect refinance lending to shrink from about $655 billion this year to $430 billion next year, according to Mortgage Professional America.
Let’s put that in real money. On a $400,000 loan, the monthly principal and interest at 6% is about $2,398. At 7.5%, it’s about $2,797. That’s roughly $400 more every month or about $4,800 a year for every year you can’t refinance.
I’ve been watching rate forecasts for more than 40 years, and I’ll tell you this: They miss in both directions, and this one could miss too. But “rates will come down” is a hope, not a plan.
Here’s what to do instead, depending on where you stand.
1. If you’re buying: Budget at today’s rate, not tomorrow’s
If the only way a house works is a refinance in 2027, the house doesn’t work. Run your budget at 7.5% and assume you’ll be living with that payment for years.
That doesn’t mean you’re stuck with the average rate. Your credit score, down payment and the lender you pick all move the number, and I go through seven ways to pay less than the headline rate here.
The single cheapest move is getting more than one quote. If you’re shopping now, here’s a place to compare today’s mortgage rates before you sign anything.
2. If you have an ARM: Find out your worst case now
Adjustable-rate mortgages (ARMs) looked smart when most forecasters expected rates to fall. Now they’re a question mark.
After the fixed period ends, an ARM’s rate resets on a schedule, based on an index plus a fixed add-on the lender calls a margin, the Consumer Financial Protection Bureau (CFPB) explains.
Some ARMs cap how much the rate can rise at each reset or over the full term.
Pull out your loan documents and find four things: your index, your margin, your caps and your next reset date. Then do the math on the highest payment your loan allows. If you can’t live with that number, you need a plan before the reset, not after.
If you’re not sure how the two loan types stack up, here’s a plain-English look at fixed-rate versus adjustable-rate mortgages.
For some ARM borrowers, locking in a fixed rate will make sense even at today’s levels — especially if a reset is close and the cap allows a big jump. You can compare refinance rates here to see what a fixed loan would cost you.
3. If you have a HELOC: The Fed is working against you
Home equity lines of credit typically carry variable rates, often built on the prime rate plus a margin, according to a CFPB booklet. That means your payment can climb even if you never borrow another dime.
The Federal Reserve raised its benchmark rate by a quarter point in September, to a range of 3.75% to 4%. The prime rate stood at 7% as of Oct. 13, per the Fed’s data.
And Fannie doesn’t see the Fed stopping there. Its October forecast has the Fed’s benchmark rate averaging 4.4% next year, roughly half a point above today’s level.
If your HELOC rate follows, every half-point increase adds about $21 a month in interest on a $50,000 balance — about $250 a year. That’s not a disaster, but you get nothing for it.
My advice: Treat a HELOC balance like a credit card balance and pay it down. A variable-rate loan in a rising-rate world is no place to park debt you could be getting rid of.
One thing before we keep going — the financial world is louder and dumber than ever. Hot takes everywhere. Almost none of it is worth your time. I’ve spent 35+ years cutting through the noise so you don’t have to. Sign up for the free Money Talks Newsletter — 10 seconds, no spam, just the stuff that matters.
4. If you’re thinking of selling: Price out the move first
If you’re sitting on a low-rate mortgage, moving means trading it in for a rate around 7.5%. Do that math before you call a real estate agent.
Say you’d borrow $300,000 for your next house. At 3%, a 30-year payment is about $1,265 a month. At 7.5%, it’s about $2,098. That’s roughly $833 a month more — close to $10,000 a year — for the same size loan.
Don’t count on rising home values to bail you out, either. Fannie’s forecasters see home prices climbing only 0.6% next year, after a 2.7% gain this year, Mortgage Professional America reports.
None of this means you shouldn’t move. A job, a growing family or a parent who needs you can matter more than a mortgage rate.
Just know the real price going in, including the tax side if you’ve owned a long time: Longtime owners can get hit with a surprise tax bill when they sell.
5. If you have cash: You’re the winner, so act like it
Every rate story has a winner, and this time it’s savers. Higher rates should mean higher yields on savings and CDs.
The catch: Plenty of banks don’t pass it along. The national average savings account paid 0.37% in September, and the average 12-month CD paid 1.73%, according to FDIC figures published by the Federal Reserve Bank of St. Louis.
On $25,000, that 0.37% earns about $93 a year. That’s a couple of pizzas. If your bank is paying anything close to the average, you’re leaving money on the table — and your savings may be losing to inflation.
One wrinkle: If rates are still headed up, don’t lock all your money into a long-term CD today. Shorter terms let you roll into higher rates later. You can compare savings and CD rates in our Solutions Center.
The bottom line
Fannie Mae’s forecasters aren’t fortune tellers. A month ago they had rates heading down, and next month they may change their minds again.
That’s exactly the point. If your plan only works when the forecast is right, you don’t have a plan. You have a wager. Make every money decision on the numbers in front of you today, and if rates do fall, you’ll be ready to pounce.
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