Anticipated Changes in Home Loan Interest Rates for May 2025
Revamped Edition:
Here's the scoop on mortgages this month: Despite inflation lingering around and the Federal Reserve leaving interest rates unchanged, it ain't likely mortgage rates will see significant movement. However, a sluggish economy and new post-election turmoil could nudge rates a tad lower in May, as per mortgage experts.
Greg McBride, our financial guru, shares, "Mortgage rates are likely to drop if we see economic weakness in data, not just sentiments, but any decline will be minimal if we witness more inflation pressure."
For months, mortgage rates have been pegged high by the economy's strength, inflation fears, and ballooning federal deficit concerns. The hope of mortgage rates sliding back into the 5 percent zone? Forget about it—the average 30-year mortgage rate started dropping from 7 percent last summer, hit a low of 6.2 percent in September, but quickly rebounded, hovering above 7 percent by the end of 2024, according to our weekly lender survey. As of April 30, rates stood at 6.81 percent.
The Federal Reserve doesn't dictate mortgage rates directly, but they do have an impact. The Fed cut its benchmark rate three times last year, but it kept it steady in their January meeting. Their next meeting is coming up in early May.
Now, you might be wondering: will mortgage rates go down again? The chances of sub-6 percent mortgage rates have dimmed. Fannie Mae predicts rates will edge down to 6.2 percent by the end of the year, while the Mortgage Bankers Association expects 30-year rates will barely decrease, hitting 6.7 percent by the end of 2025.
While factors like inflation and tariffs could cause some volatility, the current trend indicates that mortgage rates might be heading for a slide in the short term. As Anthony Kellum of Kellum Mortgage put it, "If signs of economic weakness start showing up in data and not just sentiment surveys, mortgage rates are likely to fall."
If you're planning to get a mortgage this year, here are some tips:
- Credit Score Enhancement: A better credit score can lead to lower rates. Aim for a score of at least 780 for the best deals.
- Saving for a Down Payment: A larger down payment can help score a lower rate and avoid mortgage insurance, which adds to your loan costs. If you're a first-time homebuyer and can't come up with 20 percent, there are loans, grants, and programs available with eligibility requirements based on factors like income.
- Debt-to-Income Ratio Understanding: Your debt-to-income ratio compares the total amount you owe to your income. A lower ratio can improve your chances of securing a mortgage. Check out our website's calculator to figure out yours.
FAQ
1. Who sets mortgage rates?Mortgage rates don't have a single setter. Instead, they stem from a complex mix of economic factors. Lenders typically set their rates based on their desired profit after accounting for risks and costs. While the Federal Reserve receives a lot of attention, it doesn't directly set mortgage rates. Instead, the 10-year Treasury yield serves as the closest proxy.
2. When should I refinance?Refinancing is a personal decision, but factors like rate drops since you took out your original mortgage or improved credit score could make refinancing a smart move. A cash-out refinance can provide funds for home renovations or other expenses. Consult with a financial advisor to determine the best course for your unique situation.
- According to mortgage experts, there might be a slight decrease in mortgage rates this May due to economic weakness and new post-election turmoil.
- Despite the Federal Reserve leaving interest rates unchanged, mortgage rates are unlikely to see significant movement, as explained by Greg McBride, a financial guru.
- For those considering investing in real-estate, it's important to note that the average 30-year mortgage rate has been hovering above 7 percent and is expected to continue at this level, as per our weekly lender survey.
- Personal-finance experts suggest enhancing your credit score, saving for a down payment, and understanding your debt-to-income ratio when applying for a mortgage to secure the best deals.
- It is essential to understand that mortgage rates are influenced by a combination of economic factors, with the 10-year Treasury yield serving as the closest proxy, not the Federal Reserve directly.
