The decrease in rates in 2025 is attributed to various factors such as Federal Reserve rate cuts, lower 10-year Treasury yields, and a narrower spread between those yields and the 30-year conventional mortgage rate. These rates are closely linked due to their long-term perspectives.
“It wasn’t that long ago that the 10-year Treasury was close to 5%; we stayed at 4.50% for a while and now we are in the 4.15% range,” said Joseph Panebianco, CEO of AnnieMac Home Mortgage. “Much of that reflected the market reducing its expectations for inflation, but there’s also something called the term premium — the additional compensation investors demand for long-term risk — and that has come down as well.”
Mortgage spreads also declined throughout the year, a development HousingWire Lead Analyst Logan Mohtashami has referred to as the standout feature of the 2025 housing market. Unlike the previous year, spreads did not reach the 3.60% level.
Drop in rates, rise in refinancing
At Atlantic Bay Mortgage Group, chief operating officer Emily Gardner mentioned that the company capitalized on intermittent rate drops during the year to finalize refinancing loans, with cash-out refinances being particularly popular.
“With rates generally lower this year, especially in the second half, our purchase business remained strong,” Gardner stated. “People have realized that interest rates won’t be as low as 3% anymore, and inventory has increased – 2024 was a good year, and we are optimistic going into the next year.”
Gardner also noted that nonqualified mortgages, including debt-service-coverage ratio (DSCR) loans targeting investors and second-home buyers, gained momentum through the broker channel in 2025.
According to Panebianco, another factor influencing rates in 2025 and beyond is the competition among lenders. Some lenders have reduced margins in recent years to gain market share, creating pricing pressure that eliminated weaker competitors from the market. However, some lenders may temporarily offer more aggressive pricing on specific products, a trend that continues daily, he added.
“We are at a stage where the remaining players have the capital base to withstand the market,” Panebianco explained. “But most of these big players realized that it’s a short-lived experiment.”
What’s next?
Looking forward to 2026, industry experts anticipate the first half of the year to be relatively stable in terms of monetary policy, as Fed Chair Jerome Powell’s term ends on May 16. President Donald Trump is expected to announce a replacement early in 2026.
“We probably won’t see significant movement in interest rates in the first half of the year,” Panebianco predicted, noting that this outlook could change with drastic shifts in job or inflation data. “I am more optimistic about lower mortgage rates in the second quarter than in the first half.”
Approximately 87% of monetary policy analysts expect rates to remain unchanged at the Federal Reserve’s January meeting, according to the CME Group’s FedWatch tool — a forecast that remained consistent following the release of gross domestic product data on Tuesday.
Mortgage Bankers Association (MBA) Chief Economist Mike Fratantoni mentioned that while the “lingering effects of the government shutdown continue to impact key data,” inflation indicators within the GDP report showed an increase from the second quarter, with the core personal consumption expenditures (PCE) index rising to 2.9%.
“These data, combined with the recently released employment and CPI metrics, indicate a growing yet uneven economy where inflation remains significantly above the FOMC’s target,” Fratantoni stated. “We predict that the FOMC will maintain its stance at the January meeting and may cut rates once more next year.”
MBA forecasts that mortgage rates will stay within a relatively narrow range over the next few years, between 6% and 6.5% — a scenario that becomes more probable as the Fed approaches the end of its easing cycle. Fannie Mae‘s November forecast suggests mortgage rates around 6%.