As financial markets are being rattled by the precarious impacts of the Trump administration’s tariffs and other fiscal policies, mortgage rates continue to ride out the storm, holding close to 7%.
Most economic forecasts call for a gradual decline in mortgage rates this year, but homebuyers shouldn’t expect miracles. Fannie Mae expects average 30-year fixed mortgage rates to remain above 6.5% for most of the year.
Predictions for slightly lower mortgage rates in late 2025 are based on expectations for cooler inflation, a weaker labor market and more rate cuts by the Federal Reserve. Yet none of these appear to be imminent.
Last week, the January Consumer Price Index showed inflation rising by 3% over the past 12 months, moving away from the Fed’s target of 2%. If the central bank does resume cutting interest rates, it’s not likely to be until summer or fall.
Moreover, the prospect of trade wars, mass deportations and a ballooning federal tax deficit sparks uncertainty in the bond market, where mortgage rates are closely tied. The 30-year fixed mortgage rate (the most popular home loan term) is benchmarked to the 10-year Treasury note, so higher bond yields translate to higher mortgage rates.
Experts warn that the ongoing threat of tariffs could also negatively impact housing affordability by putting upward pressure on borrowing rates and the cost of building materials, like lumber, used to build new homes.
Today’s unaffordable housing market is caused by a combination of high mortgage rates, a long-standing housing shortage, expensive home prices, and a loss of purchasing power due to inflation.
Where will mortgage rates go in February?
Aside from day-to-day fluctuations, mortgage rates are expected to stay close to 7% for a while. Those rates seem high compared with the 2% rates of the pandemic era, but experts say rock-bottom rates are unlikely without a severe economic downturn. Since the 1970s, the average rate for a 30-year fixed mortgage has been around 7%.
Here are some of the factors affecting mortgage rates today:
Trump’s economic policies: President Donald Trump’s potential tax cuts and tariffs are still a wild card for mortgage rates. Experts say such moves could stimulate demand, increase deficits and accelerate inflation. Mortgage rates are highly sensitive to fiscal policy and economic growth.
Fed rate cuts: While the central bank doesn’t directly set home loan rates, mortgage rates are indirectly influenced by the Fed’s policy decisions. If incoming data shows higher inflation and a strong labor market, the Fed will delay future rate reductions this year, which in turn would keep home loan rates high.
10-year Treasury yields: Average 30-year fixed mortgage rates closely track bond yields, specifically 10-year Treasury yields. If inflation and labor data continue to be strong, bond yields and mortgage rates will go up. The opposite will happen if unemployment rises or inflation cools and the Fed resumes cutting rates.
Investor expectations: Bond investors act in anticipation of what they believe will happen in the economy. The Fed’s outlook for future monetary policy determines investor trading strategy and risk assessment, which is why mortgage rates often jump or dip before interest rates are adjusted.
Geopolitical situations: Mortgage rates are affected by geopolitical events, including military conflicts and elections. Political instability can lead to economic uncertainty, which can result in more volatility with bond yields and mortgage rates.
Expert tips for homebuyers
It’s never a good idea to rush into buying a home without knowing what you can afford, so establish a clear home-buying budget. Here’s what experts recommend before purchasing a home:
💰 Build your credit score. Your credit score will help determine whether you qualify for a mortgage and at what interest rate. A credit score of 740 or higher will help you qualify for a lower rate.
💰 Save for a bigger down payment. A larger down payment allows you to take out a smaller mortgage and get a lower interest rate from your lender. If you can afford it, a down payment of at least 20% will also eliminate private mortgage insurance.
💰 Shop for mortgage lenders. Comparing loan offers from multiple mortgage lenders can help you negotiate a better rate. Experts recommend getting at least two to three loan estimates from different lenders.
💰 Consider renting. Choosing to rent or buy a home isn’t just comparing monthly rent to a mortgage payment. Renting offers flexibility and lower upfront costs, but buying allows you to build wealth and have more control over your housing costs.
💰 Consider mortgage points. You can get a lower mortgage rate by buying mortgage points, with each point costing 1% of the total loan amount. One mortgage point equals a 0.25% decrease in your mortgage rate.
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