If you’ve been hoping mortgage rates might return to their pandemic-era lows, Fannie Mae’s latest forecast may be a reality check.
The mortgage giant now expects rates to average 6.5% by the end of 2025 and dip only slightly to 6.1% by the end of 2026, according to TheStreet.
For homebuyers and refinancers, this shift could mean rethinking your plans. Waiting for a dramatic drop may no longer be the best strategy, at least in the near term.
Why mortgage rate projections are rising
Just weeks ago, Fannie Mae had predicted rates would fall to about 6% in 2025 and 5.8% in 2026. But that outlook has shifted.
TheStreet reports that rising 10-year Treasury yields, global uncertainty, and persistent inflation may keep mortgage rates elevated.
Fannie Mae Chief Economist Mark Palim said in February that mortgage rates are expected to stay volatile this year as markets respond to economic shifts, including tariffs policy changes.
What buyers need to know now
For first-time buyers, the revised forecast may sting. A 6.5% mortgage rate — compared to the 3% rates seen in 2020 and 2021 — can significantly increase borrowing costs.
Let’s say you’re buying a $400,000 home with 20% down. At a 3% rate, your monthly payment (principal and interest) would be about $1,349. At 6.5%, that jumps to roughly $2,023. That’s nearly $675 more per month, or over $240,000 in added interest over 30 years.
Still, buyers may benefit from changing market dynamics. The housing market now has 500,000 more home listings than buyers, a first in over a decade, TheStreet reports. That rise in inventory could mean less competition among buyers and more room to negotiate.
Refinancing might still pay off — for some
Homeowners who locked in rates below 4% during the pandemic likely won’t benefit from refinancing. But as TheStreet reports, those who bought when rates peaked above 7% in 2022 or 2023 might save money by refinancing at 6.5%.
Just be sure to account for closing costs, which typically range from 2% to 5% of your loan. If you have an adjustable-rate mortgage nearing its reset period, Fannie Mae’s forecast suggests now may be a good time to consider locking in a fixed rate.
How to take control of your mortgage costs
Instead of waiting indefinitely, consider these strategies to improve your position:
- Boost your credit score. Improving your credit score by 40 points could cut your rate by 0.25%, potentially saving $50 to $60 per month on a $400,000 loan.
- Get multiple quotes. The Consumer Financial Protection Bureau says comparing lenders can save thousands over the life of a loan.
- Buy points if staying long-term. Paying 1% of your loan upfront may lower your rate by about 0.25%, which might pay off if you’ll be in the home past the preak-even point, often around five years.
- Evaluate ARMs carefully. Many lenders now offer hybrid loans, such as 7/1 or 10/1 ARMs, which start with a lower rate and may include caps, providing flexibility if you plan to stay in the home for only a few years.
- Control what you can. You can’t lower national rates, but you can increase your down payment, reduce debt, or choose a lower-priced home to keep payments affordable.
Why waiting might cost you more than you think
Despite high rates, buyer sentiment is improving. TheStreet reports that Fannie Mae’s May Housing Survey shows sentiment rose 4.3 points from April to May and 4.1 points year-over-year.
Many buyers are adjusting to the reality that ultra-low rates are unlikely to return in the near term.
If you’re financially ready and find the right property, today’s improved inventory and less competitive buying market might outweigh the uncertain benefits of waiting.
Mortgage forecasts can change, but locking in a manageable rate on a home that fits your budget could be a smart move.
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