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It wasn’t all that long ago that home buyers had access to some of the best mortgage rates in recent history, as rates fell to 3% and even lower during the COVID-19 pandemic.
Unfortunately, mortgage rates have spiked since then and are currently at about 6.50% for a 30-year mortgage. This has left many potential home buyers wishing they’d taken advantage of low rates when they had the chance and hoping they might soon return.
So, how likely is it that 3% rates will come back? Unfortunately, not very. Here’s why, and where rates are probably headed over the next year.
Why 3% rates won’t return any time soon
Mortgage interest rates fell to 3%, and even lower, during 2020 and 2021 because of a mix of economic factors. As the economy was reeling from the effects of the COVID-19 pandemic, people lost their jobs, businesses closed, and people moved their money into safer investments, like bonds.
These factors, along with aggressive rate cuts by the Federal Reserve, contributed to falling mortgage rates.
Since then, the economy has been growing and the Fed has raised rates. Unemployment is relatively low at 4.30%, and the U.S. gross domestic product (GDP) grew at a steady rate of 3% in the second quarter of this year.
If the economy were doing poorly, mortgage rates would likely fall. However, 3% rates aren’t on the horizon since the overall economy is mostly stable and growing.
Ultra-low mortgage rates may be a thing of the past, but that doesn’t mean you can’t find great rates. Click here to view the best mortgage lenders.
Mortgage rates are expected to fall over the next year
While 3% rates are a pipe dream for now, the good news is that most economists expect rates to come down over the next year. Predictions vary, but here are a few estimates of where rates could be by the end of 2025.
| Time Frame | Mortgage Bankers Association | Fannie Mae | Wells Fargo |
|---|---|---|---|
| Beginning of 2025 | 6.40% | 6.00% | 5.95% |
| End of 2025 | 5.90% | 5.70% | 5.55% |
For comparison’s sake, let’s look at how much a rate change could affect monthly payments for a $350,000 house with a 20% down payment. Here’s how your mortgage payment would change if rates drop from their current level of 6.40% down to 5.55%.
| Home Price | Interest Rate | Mortgage Length | Monthly Payment (Principal + Interest) |
|---|---|---|---|
| $350,000 | 6.40% | 30 years | $1,751 |
| $350,000 | 5.55% | 30 years | $1,600 |
You’d save about $151 per month (or more than $1,800 annually!) in this scenario if rates fall to the Wells Fargo estimate.
While these rates may not be exciting for potential home buyers who missed out on 3% rates, it’s worth noting that you may get better rates depending on your financial situation and credit score.
That’s why it pays to shop around for rates with the best mortgage lenders when you’re looking to buy a house. Some lenders may offer you a lower rate than others or include other perks like down payment assistance, closing cost assistance, or even temporary rate buydowns.
While there’s nothing you can do about bringing 3% mortgage rates back, you can compare rates from lenders and their potential incentives to see which one works best for you. I recently got a quote from one lender that was about 0.25% lower than another.
That might not seem like a lot, but consider that this small rate adjustment equals about $9,000 in savings over the life of a $350,000 loan. And all it took was a few extra minutes to get another quote.
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The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Wells Fargo is an advertising partner of The Ascent, a Motley Fool company. Chris Neiger has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
