Where Will the Mortgage Rate Go for the Remainder of 2025?

By Cleo Li, Co-Founder

With the latest jobs report showing unemployment up to 4.3% and 911,000 fewer jobs than originally reported through March, it seems almost certain the Fed will cut rates at its September 16–17 FOMC (Federal Open Market Committee) meeting. Some analysts are even predicting a half-point cut. But does that mean mortgage rates will fall too?

Not necessarily.

The Fed rate is a short-term rate, as short as overnight lending between member banks. While it can influence long-term rates, it does not determine them.

Mortgage rates, by contrast, are long-term. A lender is committing capital for 30 years at a fixed rate, and with so much uncertainty over that time, they naturally demand higher rates than short-term loans to manage risk and earn a return.

You may think your mortgage comes directly from the bank or credit union you work with, but in most cases, they are just the front end of the process. After underwriting and issuing the loan, they bundle similar loans together and sell them to investors. This allows them to recover their capital and make new loans.

The investors are typically large institutions, such as pension funds or university endowments, seeking yields higher than Treasury notes or bonds. These bundled loans are called mortgage-backed securities (MBS). Like bonds, they are publicly traded. The most widely traded is the Fannie Mae 30-year fixed-rate MBS (FNMA).

So, what determines the mortgage rates?

The demand for MBS.

• If investors eagerly buy these securities, the MBS prices rise and the yields drop. The mortgage rates drop too because lenders can fund mortgages more cheaply.
• If investor demand weakens, yields rise, pushing mortgage rates higher.

It may seem like your lender sets your mortgage rate when they quote you a number and ask if you want to lock it in. In reality, they are looking at the secondary market for mortgage-backed securities (MBS) and estimating what yield will attract a buyer in roughly 30 days. Your loan is then issued at that rate.

What influences the demand for MBS?

A lot, and I don’t think any economist can fully understand all the factors that can influence the demand for MBS (therefore accurately forecast mortgage rates). Below is what I can think of.

Government bonds, especially the 10-year Treasury, play a major role in mortgage rates. If investors can earn similar returns from a virtually risk-free Treasury bond, they have little reason to choose higher-risk mortgage-backed securities (MBS). That is why there must always be a reasonable spread between the two. Historically, the gap between the 10-year Treasury and the 30-year fixed mortgage rate has been 1.6% to 2%, with the notable exception of the post-COVID years when (Fed and mortgage) rates were artificially suppressed and then raised sharply.

[Source: Board of Governors of the Federal Reserve System (US) via FRED®]

Another major factor is how investors view the risks of holding long-term, fixed-rate debt, especially their expectations for inflation. If they believe inflation will run higher over the next decade or two, they will demand higher interest rates to offset that risk.

Government monetary policy also plays a role. After the 2008 financial crisis, for example, the Fed bought large amounts of mortgage-backed securities, which artificially pushed mortgage rates lower to help stabilize the housing market.

What will the mortgage rate be for the remainder of 2025?

Will mortgage rates drop if the Fed cuts rates?

Recent history suggests not. In fact, rates actually rose after the Fed cut in September 2024.

[Source: Freddie Mac]

I believe mortgage rates are driven by bond market demand for yields, not by the Fed. As one analyst I follow noted:

“The global trend in long-term interest rates is up, not down, and it’s hard to explain how the US would be different. Bond investors are increasingly concerned about inflation not just in the US but everywhere.”

If the concern for inflation is increasing, I don’t see how the bond investors will be comfortable accepting (much) lower yields than right now.

A useful way to gauge mortgage rate trends is by watching the 10-year Treasury yield, which currently sits at 4.08% (as of 2025-09-09). Assuming that the spread between the 10-year Treasure and 30-year fixed-rate mortgage rate returns to its pre-COVID range (1.6% – 2%), we can expect today’s mortgage rate between 5.68% and 6.08%. It is currently 6.38%.

The 10-year yield could fall if and when the Fed cuts rates, but I do not expect a sharp drop given global inflation concerns and the broader upward trend in long-term interest rates.

My view: mortgage rates will likely remain above 6%, though somewhat lower than today’s, for the rest of 2025.

Summary

The Fed rate does not determine the mortgage rate. Mortgage rates are determined by the demand for the Mortgage Backed Securities (MBS), which are influenced by complex effects of multiple factors including the government’s long-term debt and inflation rates. We expect that the 30-year fixed-rate mortgage rate will stay above 6% but lower than the current rate for the remainder of 2025.