Many or all companies we feature compensate us. Compensation and editorial research influence how products appear on a page. Personal Finance When Will Interest Rates Go Down? Fed Rate Cuts Forecast and Effects on Mortgages and Loans Updated May 29, 2025 15-min read Written by Timothy Moore, CFEI® Written by Timothy Moore, CFEI® Expertise: Bank accounts, credit cards, taxes, insurance, personal loans Timothy Moore is a Certified Financial Education Instructor (CFEI®) specializing in bank accounts, student loans, taxes, and insurance. His passion is helping readers navigate life on a tight budget. Learn more about Timothy Moore, CFEI® Mortgage rates hit historic lows in the early days of the COVID-19 pandemic, with some homeowners signing loans below 3%. While today’s average mortgage rates (just shy of 7%) are more than double those pandemic-era rates, they’re nowhere near the 18% (or higher) rates of the early 1980s. Still, today’s rates—combined with rapidly increasing housing costs amid stagnant wages, high inflation, and economic uncertainty—have made homeownership feel out of reach for many, and borrowing any type of loan a source of angst for most. Many friends and family members, who know I write about finance as a Certified Financial Education Instructor—regularly ask me, “When will interest rates go down?” The unfortunate answer: Not any time soon. Below, I’ll share my thoughts on today’s rates, expert predictions about where they’re headed, and how to navigate buying a house or making other lending decisions while interest rates remain high. Table of Contents What is the federal funds rate? Are mortgage rates going down? Will mortgage rates go down this year? How are mortgage rates calculated? Should you wait for rates to drop before buying a house? How to get a lower interest rate on a new house Will other interest rates drop this year? Savings accounts Credit cards and personal loans Student loans Car loans How to navigate short-term loans in a high-interest rate environment What is the federal funds rate? You may have heard politicians, news anchors, financial advisors, and journalists talking about the “Fed rate.” This actually refers to the federal funds rate, the interest rate that banks can charge each other for overnight loans to one another. It’s set by the Federal Open Market Committee (FOMC), a branch of the Federal Reserve that meets eight times a year to make decisions aimed at managing inflation and maintaining economic stability. While this rate doesn’t directly dictate the interest rates consumers pay, it acts as a baseline for borrowing costs across the economy. When the Fed raises or lowers the federal funds rate, it influences how expensive it is for banks to lend money—which in turn affects the rates they offer consumers on everything from credit cards and personal loans to auto loans and home equity loans and lines of credit (HELOCs). Even though mortgage rates are more closely tied to the 10-year Treasury yield (more on that later), they’re still shaped by the overall economic climate the Fed is managing. For example, if the Fed keeps rates high to fight inflation, lenders may remain cautious and continue pricing mortgages conservatively. Conversely, signs of economic softening and Fed rate cuts can ease pressure on mortgage rates—though not always right away. At its most recent meeting, the Fed voted to hold the rate steady at 5.25% to 5.5%, and it’s widely expected to do the same at its upcoming meeting on June 18, 2025, according to CME Group projections. That means higher borrowing costs will likely stick around a little longer—for mortgages and nearly every other type of loan. Are mortgage rates going down? Technically speaking, yes, year-over-year, mortgage rates are going down—but not by much. According to Freddie Mac, fixed rates for a 30-year mortgage are 6.81% in May 2025. That’s down from 7.02% in May 2024—and within the last year, rates did drop as low as 6.08%. This doesn’t reflect a downward trend; rather, rates are hovering between 6% and 7%, occasionally flirting with the upper 5%. This chart shows that trendline. The table below shows mortgage rate averages for each month from May 2024 through April 2025: MonthAverage mortgage rate (30-year fixed)May 20247.06%June 20246.92%July 20246.85%August 20246.50%September 20246.18%October 20246.43%November 20246.81%December 20246.72%January 20256.96%February 20256.84%March 20256.65%April 20256.73% Source: Freddie Mac’s Primary Mortgage Market Survey, May 2024 – April 2025 Will mortgage rates go down this year? There’s been movement in mortgage rates, both up and down, in the last year, but virtually, we’re in the same spot in the spring of 2025 as we were in 2024. So what’s in store for the rest of 2025? Will mortgage rates go down this year? Probably not. At least, not by that much. To get a better sense of whether mortgage rates will go down this year, I spent some time analyzing a few reports from key players in the industry. Most expect mortgages to hold steady or drop slightly; some predict a greater drop (to 6%) by the end of 2026. Freddie Mac: “Higher for longer” Mortgage rates remained higher than expected in 2024. Unlike last year when many were anticipating that mortgage rates would decline, in early 2025 the prevailing sentiment is that rates will stay higher for longer. This may impact prospective buyers and sellers as we get into spring. – “Economic, Housing and Mortgage Market Outlook – January 2025,” Freddie Mac Fannie Mae: “Lower rate outlook” Mortgage rates are now expected to end 2025 and 2026 at 6.3% and 6.2%, respectively, downward revisions of three-tenths for each, according to the March 2025 commentary from the Fannie Mae (FNMA/OTCQB) Economic and Strategic Research (ESR) Group. – “Mortgage Rates Expected to Move Lower in 2025 and 2026,” Fannie Mae Zillow: “Volatile” Borrowing costs should ease in 2025, but as we saw in 2024, mortgage rates rarely do what’s expected of them. What’s more certain is that buyers should expect plenty of ups and downs throughout the year. – “December Market Report: 4 Predictions for 2025,” Zillow National Association of Home Builders: “Will not be smooth” As of April 10th, the current Freddie Mac 30-year fixed rate mortgage sits at 6.62%, marking the 12th consecutive week below 7%. While it will not be smooth, NAHB anticipates the 30-year mortgage rate to average around this rate by the end of 2025 and just above 6% by the end of 2026. – Economist Eric Lynch, “April 2025: Mild Economic Growth in the Forecast,” National Association of Home Builders J.P. Morgan: “Ease only slightly” [W]e aren’t forecasting mortgage rates to breach 6% in 2025 — they should ease only slightly to 6.7% by the year end. – Securitized Products Research Head John Sim, “The outlook for the US housing market in 2025,” J.P. Morgan How are mortgage rates calculated? Mortgage rates are complex; several key factors can affect current rates—chief among them, the 10-year Treasury yield. 10-year Treasury yield The 10-year Treasury yield is the interest rate the federal government pays to borrow money for 10 years. Who are they borrowing from? People like you and me. In addition to putting money in a savings account or certificate of deposit, or investing it in stocks, we can purchase low-risk Treasury notes from the government. These pay out interest every six months until they mature (after 10 years). How is this related to mortgages? The 10-year Treasury bond yield rate is a benchmark for long-term loans, including mortgages. Usually, when the Treasury yield changes, mortgage rates shift similarly. Right now, the 10-year Treasury rate is around 4.5%. It’s all about the spread OK, so if the 10-year Treasury rate is hovering around 4.5%, why aren’t mortgage rates lower? Lenders use something called a spread. Essentially, it’s a little wiggle room, expressed as a percentage, above the current Treasury rate, that helps mortgage lenders cover the cost and risks of lending. Think of it as how mortgage lenders make a profit—their version of markup. When you go to the store and buy a gallon of milk or a new T-shirt, the store charges you more than it paid for the product, to cover expenses and risks. Mortgage lenders do the same by setting a mortgage rate above the current Treasury rate. Federal funds rate While mortgage rates are primarily tied to long-term trends like the 10-year Treasury yield, the federal funds rate still plays an important indirect role. When the Federal Reserve raises this rate, it signals that borrowing across the economy is getting more expensive. That can influence investor behavior, slow consumer spending, and shift the way banks price loans—including mortgages. Higher federal funds rates often push short-term rates higher (like those for credit cards and personal loans), but they also affect the broader lending environment. When the Fed keeps rates elevated to fight inflation, mortgage lenders may maintain larger spreads above the Treasury yield to account for added uncertainty or reduced demand. In contrast, a cut in the federal funds rate can ease some of that pressure, encouraging banks to offer more competitive mortgage rates—especially if inflation cools at the same time. It’s not a one-to-one relationship, but the Fed’s decisions ripple through the economy, shaping the conditions under which mortgage lenders operate. If the federal funds rate stays high, mortgage rates are unlikely to drop significantly—even if Treasury yields move a bit lower. Other mortgage rate factors Of course, mortgage rates aren’t solely based on the Treasury rate and the federal funds rate Beyond those, lenders set rates based on factors such as: Financial markets Inflation rates Economic conditions Your own finances (credit score, income, etc.) For instance, uncertainty around President Trumps’ tariff policy and the recent U.S. credit rating downgrade from Moody’s have impacted current mortgage rates. Should you wait for rates to drop before buying a house? If you’re waiting to get a mortgage at pandemic-level rates, you’ll be waiting a long time. Sure, they may drop to around 6% by the end of next year, but there’s not a noticeable difference between today’s rates and those projected rates. And in the meantime? Housing prices will likely continue to rise. For instance, J.P. Morgan expects housing prices to rise by 3% this year. So while families try to wait out insignificant drops in interest rates, housing prices are skyrocketing; any minor savings you’d get by waiting for a small rate drop over the next year will be obliterated by rising housing prices. I feel that pain personally: My husband and I bought a house in the late summer of 2020 with a 2.75% rate. Last year, we almost bought a house at a near-7% rate. Despite financing $50,000 less than we did with our current mortgage, our monthly payment would have been about $500 more than the payment for our current home. We ultimately pulled out because of a bad inspection, but we recognize that we’re going to have to get comfortable with a higher payment if we ever intend to move. Having trouble navigating today’s financial markets, from saving for a down payment to securing a mortgage with a manageable interest rate? Financial experts can never have all the answers, either—but talking through the possibilities with one can help. Services like Money Pickle let you connect with a real financial advisor (a Certified Financial Planner) to discuss major financial decisions like when to buy a house and how to invest in today’s confusing market. How to get a lower interest rate on a new house The average 30-year fixed mortgage rate isn’t going to drop any time soon—at least, not significantly. But there are still ways to lock in a lower rate on a new mortgage: 15-year mortgage A 15-year mortgage means you’d pay off your house twice as fast. Monthly payments are understandably much larger, but current rates for these shorter loans are more competitive. Right now, the average 15-year fixed mortgage rate is 5.92%. Mortgage buydown A mortgage buydown lets you “buy down” your interest rate by buying discount points. A point typically represents a 0.25% decrease in your mortgage rate and usually costs 1% of the mortgage. For instance, if you have a 6.75% mortgage rate on a $300,000 mortgage, you could lower the rate to 6.50% by paying $3,000. This would save you about $18,000 over the life of the loan. Use a mortgage calculator to find out just how much the purchase of a mortgage point could save you. This does, of course, require more money at closing. You can theoretically finance mortgage points, but this has less of an impact on how much you save. Assumable mortgage An assumable mortgage allows you, as a buyer, to take over a seller’s mortgage. Rather than get an all-new mortgage, you essentially take over (assume) the seller’s mortgage in its current form—interest rate, repayment period, and remaining balance—though you’ll still owe the seller money, in cash, to compensate them for what they’ve already paid on the house. The reason to do so? If the seller got their mortgage when rates were significantly lower, you can assume their low interest rate, rather than get a new, higher rate. Assumable mortgages are complex, and they carry a number of risks. Not every mortgage can be assumed, either. You’ll definitely want to talk with an advisor before going this route. Will other interest rates drop this year? In answering, “When will interest rates go down?” I’ve focused mostly on mortgage rates—but the federal funds rate plays a much bigger role when it comes to short-term loans and savings products. So even if you’re not buying a home, rate changes could still affect your wallet. Savings accounts Interest rates on savings accounts tend to rise and fall with the federal funds rate. When the Fed hikes rates, banks can offer more attractive APYs to compete for deposits. But when the Fed lowers rates—as it might later this year—those APYs often drop. Right now, with the Fed holding steady, savings rates have plateaued. But if rate cuts come, expect to see those high-yield accounts get a little less exciting. Credit cards and personal loans Most credit cards have variable interest rates tied to the prime rate, which moves in lockstep with the federal funds rate. That means when the Fed raises rates, your credit card APR goes up, too—usually within a billing cycle or two. The same goes for many personal loans offered by traditional banks and lenders. So if the Fed decides to cut rates later this year, it could offer some modest relief for borrowers carrying balances or shopping for a new personal loan. Just don’t expect anything dramatic unless the Fed cuts significantly. Student loans Federal student loan rates are recalculated each year in early summer, based on a formula that includes the 10-year Treasury yield. So while changes to the federal funds rate don’t directly affect your federal student loans, the broader market trends driven by Fed policy can still influence future loan rates. If you’ve got private student loans with variable rates, though, you’re more exposed—those rates can adjust up or down in response to changes in the federal funds rate. Car loans Car loans are a bit of an outlier. They’re more closely tied to the five-year Treasury note than the federal funds rate. That said, when the Fed raises or lowers rates, it still shapes the lending environment in a broader sense. And like most financing products, your final car loan rate depends heavily on personal factors: your credit score, the vehicle, your down payment, and the loan term all play a role. How to navigate short-term loans in a high-interest rate environment High interest rates don’t just make mortgages more expensive—they can hit you hard on credit cards, personal loans, and other short-term borrowing, too. When the federal funds rate is elevated (as it is now), lenders pass that cost along to consumers. That means higher monthly payments, more expensive financing, and less room for error if you’re carrying a balance. But there are a few ways to navigate this environment more wisely. If you’re using credit cards, prioritize paying down your balance as quickly as possible. The average credit card APR is well over 20%, and if the Fed holds rates high, those rates won’t be coming down any time soon. Consider a balance transfer credit card with a 0% intro APR offer if you’re carrying a balance—but be sure you can pay it off before the promotional period ends, or you could get hit with a much higher rate. If you’re shopping for a personal loan, focus on your credit score. In a high-rate environment, lenders reserve their best offers for the most creditworthy borrowers. If you can, try improving your credit profile before applying, or use a lender that lets you prequalify with a soft credit check to see your rate upfront. You can also compare multiple lenders—even a small difference in APR can add up over the life of the loan. Borrow only what you need. It’s tempting to borrow more “just in case,” but the cost of borrowing is higher than it’s been in decades. The less debt you take on while rates are elevated, the less interest you’ll pay overall—and the better positioned you’ll be if rates do start to drop later on.