Image source: Getty Images

The Federal Reserve recently cut its benchmark interest rate for the first time since March 2020, when an emergency cut was enacted at the onset of the COVID-19 pandemic. As anyone who has tried to buy a house, car, or pretty much anything else requiring financing can tell you, high interest rates make it much more expensive to borrow money.

So, with the Fed finally cutting interest rates, many would-be home buyers are optimistic that we’ll finally get some relief. While the days of 3% mortgage rates aren’t likely to return anytime soon, here’s a rundown of where mortgage affordability stands now and what could come next.

Are you in the market for a home? Check your rates with our top mortgage lenders right now.

Affording a home has become much easier

Before we go any further, it’s important to point out that buying a home for the first time has become far more affordable over the past year or so, even though home prices have not come down.

That’s because 30-year mortgage rates have fallen significantly from a high of 7.90% in late 2023 to 6.14%, according to the latest data from the Mortgage Bankers Association. Here’s what this means for would-be home buyers.

Let’s say that you want to purchase a $400,000 home with 20% down. You’ll need to obtain a $320,000 mortgage. At a 7.90% interest rate, you’d have a monthly principal and interest payment of $2,325, before taxes and insurance. However, with a 6.14% interest rate on a 30-year mortgage, your principal and interest payment would be $1,948 per month for the same home at the same price.

In other words, if you buy a $400,000 home today and receive the average interest rate, you’ll save $377 per month, $4,524 per year, and more than $135,000 in interest over the life of a 30-year mortgage. That difference in monthly payment can have a big impact on a family’s ability to afford a home.

Will mortgage rates continue to fall?

Unfortunately, there’s no way to predict future mortgage rates with accuracy. And it’s worth noting that a big reason mortgage rates have fallen so much in the past year is because of the anticipation of rate cuts.

With that in mind, here’s what we know so far.

First, the Fed is widely expected to continue to lower interest rates for at least the next couple of years. According to the economic projections of the policymakers themselves, the median expectation is for an additional half percentage point of rate cuts this year, another full percentage point next year, and yet another half percentage point in 2026.

While this would leave benchmark rates significantly higher than they were prior to 2022, it’s fair to say that if the Fed’s rate cuts proceed as expected, mortgage rates are likely to trend downward as well.

As one example, Fannie Mae predicts the average 30-year mortgage rate will fall to 5.7% by the end of 2025. The Mortgage Bankers Association sees a similar path, with a 2025 year-end estimate of 5.8%.

The bottom line

Of course, keep in mind that these are just estimates and projections, and nobody knows for sure what’s going to happen. After all, when mortgage rates were hovering around 3% at the start of 2022, how many experts do you think predicted we’d see rates more than double by the end of that year?

With that in mind, if the latest rate-cutting expectations turn into reality, it’s likely that getting a mortgage will be even cheaper in 2025. However, that doesn’t say anything about home prices, which have more to do with supply-and-demand dynamics than with the Fed’s rate cuts.

Alert: highest cash back card we’ve seen now has 0% intro APR into 2026

This credit card is not just good – it’s so exceptional that our experts use it personally. It features a 0% intro APR for 15 months, a cash back rate of up to 5%, and all somehow for no annual fee!

Click here to read our full review for free and apply in just 2 minutes.

We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
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.The Motley Fool has a disclosure policy.