Analysts predict a temporary decline in mortgage interest rates during 2026, potentially dropping below 6% or even reaching 5.5%, before an expected rise. This fluctuation is attributed to a combination of economic factors, including slowing growth, decelerating inflation, and an increased preference for safe-haven assets. However, financial advisors warn against making decisions solely based on these forecasts, emphasizing the importance of personal financial readiness and finding the appropriate property.
Currently, the average interest rate for a 30-year fixed mortgage has decreased to 6.06% as of January 15, a significant reduction from 6.97% experienced at the beginning of the previous year. This nearly one-percentage-point decrease translates to substantial savings for homebuyers, potentially reducing monthly payments by approximately $220 and overall loan costs by almost $78,000 over the loan's duration for a $450,000 home with a 20% down payment.
Despite this trend, many analysts anticipate that mortgage rates will largely remain within the lower 6% range throughout 2026. Nevertheless, certain projections suggest a short-term descent into the upper or even mid-5% territory, possibly around the middle of the year. This expected dip is not foreseen as a lasting change, with rates projected to climb back up as the economy strengthens and housing demand rekindles.
Morgan Stanley strategists project that 30-year fixed mortgage rates could briefly drop to between 5.50% and 5.75% around mid-2026 before increasing once more. Curinos, a mortgage analytics firm, shares a similar view, placing the lowest point slightly higher at approximately 5.8%, with this decline expected to be short-lived. Curinos' quarterly forecast indicates a fall in rates during the second quarter, followed by a gradual increase in the latter half of the year.
Several other experts echo these sentiments. Matt Schulz of LendingTree and Ted Rossman of Bankrate, along with Barry Habib of MBS Highway, have each suggested that mortgage rates could decrease to as low as 5.5% in 2026. Fannie Mae also initially forecasted a drop to 5.9% by year-end before adjusting its outlook upward. Jen Poniatowski, Senior Vice President of Mortgage Growth and Market Development at Key Mortgage Services, also believes that rates could briefly enter the 5% range.
The expected slowdown in the economy and a decrease in inflation could be the primary drivers for lower mortgage rates later this year, even if the Federal Reserve remains cautious with interest rate cuts. Morgan Stanley highlights investor behavior as a key factor. When economic growth slackens and uncertainty grows, investors typically shift their assets to safe havens like U.S. Treasuries. This increased demand can lead to a reduction in the 10-year Treasury yield, which mortgage rates often mirror, potentially reaching about 3.75% by mid-2026 and consequently lowering borrowing costs.
Curinos also foresees a weakening economy, noting that mortgage rates often reach their lowest points around the middle of the year. Richard Martin, Senior Vice President of Retail Lending at Curinos, expects this pattern to persist, driven by a softer labor market and ongoing inflation, which could prompt the Fed to consider more substantial rate cuts.
Martin also contends that a drop below 6% is crucial to revitalize the housing market. Given that 80% of current mortgage holders have rates below 6%, a further decrease is necessary to stimulate activity. Without such a drop, stagnation could prevail, potentially leading to governmental or monetary interventions to support the broader economy.
Even those who predict a temporary dip in mortgage rates below 6% do not expect this decline to be permanent. By the end of 2026, most experts anticipate borrowing costs to return to their initial levels, around 6%. This perspective is based on the expectation of a temporary economic slowdown rather than a severe recession. As rates decrease, housing demand and overall economic activity are projected to increase, which would reduce the demand for safe-haven bonds and gradually push Treasury yields and mortgage rates higher.
Poniatowski predicts that rates will fluctuate throughout the year, possibly ranging from 5.75% to 6.6%. For rates to remain below 6% for an extended period, she emphasizes the need for consistent progress in controlling inflation. Any unexpected surge in inflation could quickly drive mortgage prices upward.
While forecasts of lower mortgage rates might tempt some prospective buyers or homeowners to delay their decisions, financial planners advise caution. Certified financial planner Lawrence Sprung notes that attempting to time the market based on rate predictions can be risky. He stresses that focusing too narrowly on these forecasts can distract from essential factors when purchasing or refinancing a home.
Sprung cautions that waiting for rates to hit an ideal low point is like “catching a falling knife.” He advises that rates are dynamic, and individuals should be prepared for fluctuations in any direction when considering a home purchase. Ultimately, Sprung suggests not relying solely on predictions, as even when the Fed has lowered rates in the past, mortgage rates have shown varied responses, remaining stable, declining, or even increasing.
