1. Mortgage rates will move lower and hit the 5s at some point
I always start my New Year predictions post with a guess about which way mortgage rates will go.
It’s very difficult to predict mortgage rates and just about nobody gets it right. But we can make some educated guesses based on what we know.
Complicating 2025 is a new incoming presidential administration. And not just any, but a second term for Donald Trump.
This time around, he has promised some sweeping changes, including widespread tariffs, mass deportations, and big tax cuts.
All three spell higher inflation, which is what the Federal Reserve has been battling since at least early 2022.
They’ve made a lot of progress, but there are fears Trump’s policies could unwind that in a hurry.
This is partially why 10-year bond yields, which are used to determine mortgage rates, have risen so much recently in spite of three separate Fed rate cuts.
However, there is also growing unemployment and fears of a recession, which could counteract some of Trump’s inflationary policies.
There’s also the idea he may not actually do what he said he would do. For me, the economic data will matter more and I see the economy slowing and beginning to struggle.
That’s not good news for the economy, obviously, but it could be good news for mortgage rates.
Like past years, they won’t move in a straight line down, but I do believe they’ll be lower in 2025 than in 2024, with a 5-handle a real possibility.
Just expect a lot of volatility along the way and act fast if you need to lock your rate!
Read more: 2025 mortgage rate predictions
2. Second mortgages will get a lot more popular as consumers need cash
While second mortgages have gained in popularity in recent years, largely due to first mortgages being rate-locked at very low levels, they still haven’t had their moment.
And by moment, I mean when everyone and their mother takes out a home equity loan or home equity line of credit (HELOC).
That moment could come in 2025 for a few different reasons. For one, existing homeowners are sitting on record home equity with very low loan-to-value ratios (LTVs.)
Secondly, they have burned through their excess savings and will want (or need to) keep spending. These mortgages will allow them to do just that.
Lastly, loan servicers are focused on existing homeowners in their portfolios and will be pitching them said products, knowing a first mortgage isn’t an option for most.
Mortgage lenders might even need to do this to stay afloat if mortgage rates remain stubbornly high and prevent them from originating sufficient purchase and refinance volume to keep the doors open.
So if you’re a homeowner, expect to be pitched one of these loans.
If you’re an economist, keep an eye on this type of lending. If it becomes rampant, we’ll have a riskier housing market with more leverage and debt, amid potentially plateauing home prices.
Tip: Three Key Differences Between HELOCs and Home Equity Loans
3. Refinancing will pick up steam as rates fall and lenders pounce
Mortgage lenders have been waiting with bated breath for mortgage rates to fall. And they might want to take a breath because it seems to be taking forever.
While we did get a nice rate reprieve back in August and September, rates shot higher again and are now closer to 7% again.
But if/when they fall back toward 6% in 2025, or even into the 5s, there will be a pretty sizable refinance boom.
People keep throwing out the phrase “mini refi boom” since it would pale in comparison to the rate and term refinance boom seen from 2020 to 2021.
However, it’d still be a pretty impactful event for the loan officers, mortgage brokers, and lenders out there trying to drum up business.
A recent report from iEmergent said refinance volume is expected to rise another ~40% in 2025 after climbing about 50% from 2023.
And some five million refinance applications hinge on mortgage rates falling back to around 5.5%.
So rates can really make or break the mortgage market next year and will be very important to keep an eye on.
4. Recapture will be the name of the game for new mortgage originations
If you haven’t heard of recapture, you will. It has become all the rage in the mortgage world.
Instead of looking for new customers, lenders and loan servicers are simply scanning their existing client database to find new business prospects.
Thanks to improved technology, this process can be automated so anyone in their rolodex will be alerted if they can benefit from a refinance or the addition of a second mortgage.
In September, the nation’s largest lender UWM launched KEEP to help its brokers retain their clients, even if the servicing rights to those loans lie with another company.
This trend has partially been driven by the lack of new business out there, forcing loan originators to go back and work with what they’ve got.
If you’re a homeowner, don’t be surprised if your lender reaches out to you before you reach out to them.
And even if their offer sounds great, always take the time to comparison shop it with competing brokers and lenders.
5. Home sales will bounce off the bottom but not improve as much as people think
There’s been a lot of optimism that 2025 could usher in a year of much higher home sales as those on the fence finally jump in.
The idea is that consumers are accustomed to high mortgage rates now and are sick of waiting.
It’s a good thought, but once many of these folks runs the numbers, they might balk, even if they want to buy a home.
The price of property taxes and homeowners insurance, coupled with a higher mortgage rate and a still-high asking price just might not pencil.
It’s still not even clear if we’ll surpass four million existing home sales for 2024, which could turn out to be the bottom for sales this cycle.
But chances are 2025 will see sales above the four million threshold, though perhaps not by a wide margin.
In other words, 2024 will likely prove to be rock bottom for sales, and 2025 will be a little better, but not much better. As seen in the chart above from Realtor.
Of course, surprises are always possible and if there truly is pent-up demand from impatient buyers, it could turn out better than expected.
6. Home price gains will be muted despite better rates
While I do expect mortgage rates to continue their downward trajectory into the new year, I don’t expect it to correlate to even bigger home price gains.
While 2024 will likely see home prices up over 5% again, 2025 will probably see a continued deterioration in the rate of appreciation.
In other words, expect home prices to go up again in 2025, but only by 2-3% instead of 5%.
Long story short, real estate is expensive! There’s no way to sugarcoat it anymore, and with growing supply and not a ton of buyers, well, expect prices to ease.
This will vary by region, with states like Florida and Texas expected to be cool again as the Northeast and Midwest maybe outperforms.
Either way, I wouldn’t bank on a big price hike with values looking pretty topped out these days in most locales.
For home buyers, this might be a plus if the seller is more willing to negotiate or throw in seller concessions.
They may also be more willing to pay your agent’s commission too!
7. Real estate agent commissions will come down as more negotiate
I’m hoping we get more clarity on the ongoing real estate agent commission drama that unfolded in late 2024.
New rules don’t allow offers of compensation on the MLS and it’s no longer a guarantee that the seller or listing agent will cover the buyer’s agent compensation.
As such, either the buyer has to foot the bill or they need to negotiate with the seller to pay it. Note that real estate commissions can’t be financed directly.
Given it’s no longer a certainty, I expect commissions to fall further in 2025, though it will depend on the transaction in question.
Simply put, if the home is less in demand, the seller might be willing to offer the full 2.5% or 3% to the buyer’s agent to move it quickly.
Conversely, if it’s a hot property with multiple bidders, a buyer might need to foot the bill and negotiate a lower commission to their agent.
This might entail telling their agent they can only pay 2% or 1.5%. The key is that has to be negotiated upfront.
A strategy as a home buyer might be to offer your agent their full 2.5%, but tell them if the seller only offers X, that’s all they get. You won’t make up the difference!
Read more: It’s okay to negotiate with your real estate agent!
8. More real estate/mortgage companies will embrace the vertical model
We’ve seen more companies try to do it all in the real estate/mortgage space, and we’re likely going to see more of it in 2025, especially if there is a friendlier regulatory climate.
For example, Zillow isn’t satisfied with just being a portal where you can look up your Zestimate.
They also want your home loan, as evidenced by their big hiring spree at their affiliated Zillow Home Loans unit.
Other lenders continue to incorporate their own settlement services in-house, or launch real estate agent referral systems.
Simply put, companies want to grab a bigger piece of the overall transaction, instead of just the loan, or the agent piece, or the title and escrow.
The same has been happening with home builders, with the builder’s lender often beating out the competition for the mortgage too.
Builders want to control more of the process to ensure the loan gets to the finish line. They can also make more money that way too. Win-win.
But again, make sure as a consumer you are winning too and not just paying more for the convenience of one-stop shopping.
9. FHA premiums will be cut (and maybe life-of-loan policies too!)
Here’s one prediction that could make homeownership a tad bit easier. I expect the FHA to cut premiums in 2025.
And possibly do something about that pesky life-of-the-loan insurance policy where mortgage insurance can never be canceled, even with a very low LTV.
The FHA’s Mutual Mortgage Insurance Fund (MMI Fund) is very well capitalized and premium cuts are now warranted given the buffer over the minimum reserves required.
And while Trump got in the way of a FHA cut during his first presidential term because wanted less of a government footprint in mortgage, I don’t think he’d be opposed this time around.
He knows housing is top of mind for Americans and will want to make it cheaper for them. This could be an easy way to achieve that and take a quick win himself.
Chances are a 25-basis point cut to premiums on FHA loans wouldn’t make or break many deals, but every little bit helps. Perhaps the upfront premium could also be lowered.
If the life-of-the-loan policy was removed, it’d be a huge blessing to existing FHA holders, assuming they could stop paying the costly premiums.
Stay tuned on this one!
10. Fannie and Freddie will remain in conservatorship
Finally, while there have been a lot of rumblings lately, as there were eight years ago when Trump was first elected, I don’t expect Fannie Mae and Freddie Mac to be released.
While it’s perhaps a good thought and something that should be done, given they’ve been in government conservatorship since 2008, I don’t see it happening.
There has already been a lot of blowback, with folks arguing that mortgage rates would be even higher without a government guarantee from Fannie and Freddie.
We’re also in a tenuous part of the cycle with home prices capping out and affordability historically quite poor.
Fiddling with the mortgage finance backbone might be ill-advised timing-wise. And again, Trump will want the lowest mortgage rates possible for America.
So jeopardizing that with the release of Fannie and Freddie back into the wild seems like a risky endeavor.
But again, anything is possible and I don’t expect 2025 to be a quiet, surprise-free year by any stretch of the imagination.
So you might want to buckle up and prepare for the worst, but hope for the best. And stay vigilant if buying a home, selling a home, or a taking out a mortgage!
Before creating this site, I worked as an account executive for a wholesale mortgage lender in Los Angeles. My hands-on experience in the early 2000s inspired me to begin writing about mortgages 18 years ago to help prospective (and existing) home buyers better navigate the home loan process. Follow me on Twitter for hot takes.
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