Prediction: Here's How Much Cheaper the Average Mortgage Payment Will Be in 2025
Mortgage rates have fallen significantly but could drop even further in 2025. Find out what it could mean for you.
Image source: Getty Images
Home ownership has become far more expensive in the past couple of years, and the biggest reason isn't necessarily high home prices -- it's mortgage rates. Fortunately, the average 30-year mortgage rate in the United States has come down considerably since peaking at nearly 8% in late 2023, but it sits at about 6.3% as of this writing.
Even so, many experts predict that rates will fall further in 2025. So, while we can't completely predict the future, here's my projection of what the average mortgage payment will be in 2025, and how it compares to what it costs to own a home currently.
What will the average mortgage interest rate be in 2025?
In order to predict the average mortgage payment in 2025, there are two components we need to take a closer look at: mortgage interest rates and the price of homes. Let's start with mortgage interest rates.
Mortgage rates generally track the benchmark 10-year Treasury note yield, and with the Federal Reserve widely expected to cut rates significantly over the next year, I'd estimate that the 10-year Treasury will fall to about 2.5% by the end of 2025 (it's currently about 3.63%).
Assuming mortgage rates continue to move in-line with the 10-year Treasury, this would mean the current average mortgage rate of approximately 6.2% would fall to about 5.1% by the end of next year.
What will the average home price be in 2025?
Unfortunately for those who are hoping that home prices cool off, the latest forecast from Zillow estimates that home prices will rise by 1.5% over the next 12 months. Of course, this can vary dramatically based on where in the United States your home is located, but we'll use this to compute the average.
The average U.S. home price is $361,282, also according to Zillow's data. Applying this 1.5% gain means that the average can be expected to rise to $366,701 next year.
What will the average mortgage payment be in 2025?
Let's put this together. Assuming a 20% down payment, the average buyer will need to obtain a mortgage for $293,361. With a 5.1% mortgage rate, this means that the average principal and interest mortgage payment will be $1,594.
Now, this does not include property taxes or homeowners insurance, which most mortgage lenders require to be added to the monthly payment. And of course, not all borrowers put 20% down when buying a home. With a 10% down payment, for example, the monthly payment on an average home would be $1,792, plus mortgage insurance, which typically needs to be paid with less than 20% down.
This would result in significant savings for would-be home buyers compared to recent mortgage rates. A $1,594 average principal and interest payment is significantly lower than the $1,797 payment that today's 6.29% average rate would produce and is much lower than the $2,132 payment of the 7.9% fall 2023 peak interest rate. So, it could become significantly cheaper to buy or refinance a home next year, if I'm right.
As a final thought, it's important to point out that nobody has a crystal ball that tells them what interest rates and home prices will be at any given point in the future. I'm certainly not an exception. So, while these are my best predictions based on what we know about interest rate expectations and home prices, there's no way to know for sure what will happen.
Alert: highest cash back card we've seen now has 0% intro APR until nearly 2026
This credit card is not just good – it's so exceptional that our experts use it personally. It features a 0% intro APR for 15 months, a cash back rate of up to 5%, and all somehow for no annual fee!
Click here to read our full review for free and apply in just 2 minutes.
We're firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Matt Frankel has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Zillow Group. The Motley Fool has a disclosure policy.
