Mortgage Rates in 2025: A Look at Current Trends
The housing Market has been closely watching mortgage rates in 2025, hoping for a drop that will stimulate home purchases. Over the past year, mortgage rates have decreased by one-and-a-half percentage points, making it an attractive time for those looking for purchase or refinance Loans. While purchase applications have seen a slight increase, the Growth has been slow. Weekly Data from the Mortgage Bankers Association has shown small increases, with purchase applications up 8% year over year for the week of Oct. 9.
The focus, however, has been on refinancing. When mortgage rates spiked in 2023, refinancing activity came to a standstill, leading to widespread layoffs in the mortgage industry. However, things are starting to turn around more quickly on the refinancing side. The Mortgage Bankers Association’s Refinance Index saw a 159% year-over-year increase for the week of Oct. 9.
Optimal Blue's September 2024 Market Advantage report also indicated a significant increase in refinance activity, with a 50% month-over-month Growth and over 700% Surge in rate-and-term refinance. The growing trend in refinancing is largely attributed to borrowers looking to take advantage of better terms due to having obtained loans at higher rates previously.
What Could 2025 Bring For Mortgage Rates?
Mortgage lenders are pondering whether there will be another Federal rate cut in November that could potentially lower mortgage rates. Lawrence Yun, Chief Economist at the National Association of Realtors®, has suggested that mortgage rates have already factored in the Federal Reserve's upcoming decisions.
While most economists do not foresee a drastic rate drop for 2025, Fannie Mae predicts a rate of 5.7% by the end of the year, which aligns with the Mortgage Bankers Association's forecast of 5.8%. These numbers may vary slightly in the coming months but are unlikely to change significantly. This rate is expected to prompt more refinancing activity among recent homebuyers but may not affect the majority of mortgage holders with rates under 5%.
Will Cash-Out Refinancing Lead To Remodeling?
As refinancing results in a decrease in home equity loans and HELOCs, the nature of projects funded by these loans is also shifting. There are two primary types of refinancing: rate-and-term, which typically lowers Payments and shortens terms, and cash-out, which involves receiving a lump sum Payout.
The Leading Indicator of Remodeling Activity report by the Joint Center For Housing Studies of Harvard University has indicated lower remodeling activity in recent quarters. During the pandemic, homeowners heavily invested in home improvement projects while spending more time indoors. However, the forecast for the second quarter of 2025 suggests a settling decline in spending at 0.05%.
Real estate consulting firm John Burns Research & Consulting highlights a correlation between rising cash-out refinancing and increased remodeling activity. The peak in cash-out refinances at the end of 2021, accounting for 29% of all loan locks, indicates that homeowners with rapidly appreciating homes are likely using their equity for repairs.
If you are considering refinancing your home in 2025 to take advantage of favorable rates, it's essential to prepare in advance. Similar to a purchase mortgage, securing favorable terms for refinancing may be influenced by your Credit score. Additionally, you have the flexibility to explore various lenders until you find the most suitable rate and terms for your situation.
