Mortgage rates have fallen in 2025, coming down from 6.91% at the start of the year to 6.23% in late November for a 30-year mortgage. That’s in part as the Federal Reserve has cut interest rates with further cuts viewed as probable in 2026 by fixed income markets. However, since mortgage costs reflect expectations for interest rates, further cuts in 2026 won’t necessarily bring mortgage costs down unless the Fed cuts more than anticipated. However, housing remains relatively unaffordable as tracked by the Atlanta Fed.
What To Expect For Mortgage Costs In 2026
Fixed income markets see a range of outcomes for Fed decisions in 2026 which are likely to, in turn, impact borrowing costs. That’s because Fed decisions on short-term borrowing costs and what they signal about economic conditions tend to impact longer term borrowing rates, too. The Fed Funds rate currently stands at 3.75% to 4%, with a reasonably high chance that the Fed moves interest rates lower at their next meeting on December 10. In 2026, rates are expected to trend lower, but the magnitude of any decline is uncertain. Currently, fixed income markets project that the Fed Funds rate should end 2026 around 3%. If so, then mortgage rates may not move too much. However, if rates remain closer to current levels, that could put upward pressure on mortgage costs. If rates fall closer to 2%, which markets view as possible but less likely, that may help bring mortgage costs lower.
Unemployment As A Key Metric
What happens with borrowing costs is likely to be informed by trends in the U.S. jobs market. For now the jobs market is perceived as softening with unemployment moving up gradually. However, some recent jobs reports have been delayed or canceled due to the government shutdown. If the economy weakens sharply then interest rates are likely to move lower, helping bring down mortgage rates. However, if, as we’ve seen generally in recent years, the unemployment picture is less bad than feared, mortgage rates may remain at, or above, current levels.
Other Factors
Beyond economic factors, President Trump is expected to nominate a new Federal Reserve Chair shortly. He’s expected to pick a candidate who favors lower rates. In 2025, Trump nominated Stephen Miran to the Fed who has consistently voted to bring interest rates down. Though the Federal Reserve is a broad committee of policymakers, a Fed Chair looking to move rates lower is likely to have some impact on interest rates. However, there’s also some risk that President Trump’s pressure weakens the Fed’s independence, and that could spook financial markets.
Also, Freddie Mac and Fannie Mae, which have been under government ownership since the 2008 financial crisis may see some form of privatization. Given that these entities intermediate most mortgages, this has the potential to impact mortgage costs too. However, the timeline for any privatization is unclear.
What To Expect
2026 is expected to see lower interest rates based on further cuts from the Fed. If those cuts prove larger than currently expected, perhaps due to jobs market weakness and should inflation remain subdued, that may help bring mortgage costs a little lower in 2026. However, much will depend on economic conditions. Ironically, if mortgage costs do fall in 2026, it may be because overall economic conditions are weakening, which may be a negative factor for many prospective home purchasers.