BySimon Moore,
Senior Contributor.
Mortgage rates have fallen in 2025, coming down from 6.91% at the start of the year to 6.23% in late November for a 30-year mortgage. That’s in part as the Federal Reserve has cut interest rates with further cuts viewed as probable in 2026 by fixed income markets. However, since mortgage costs reflect expectations for interest rates, further cuts in 2026 won’t necessarily bring mortgage costs down unless the Fed cuts more than anticipated. However, housing remains relatively unaffordable as tracked by the Atlanta Fed.
Fixed income markets see a range of outcomes for Fed decisions in 2026 which are likely to, in turn, impact borrowing costs. That’s because Fed decisions on short-term borrowing costs and what they signal about economic conditions tend to impact longer term borrowing rates, too. The Fed Funds rate currently stands at 3.75% to 4%, with a reasonably high chance that the Fed moves interest rates lower at their next meeting on December 10. In 2026, rates are expected to trend lower, but the magnitude of any decline is uncertain. Currently, fixed income markets project that the Fed Funds rate should end 2026 around 3%. If so, then mortgage rates may not move too much. However, if rates remain closer to current levels, that could put upward pressure on mortgage costs. If rates fall closer to 2%, which markets view as possible but less likely, that may help bring mortgage costs lower.
