Why mortgage rates are still rising and how you can still buy in 2025

In 2020 and 2021, mortgage rates dropped to historic lows during the COVID-19 pandemic. Since then, inflation has pushed mortgage rates above 6%. However, you don’t have to wait for interest rates to drop to buy a home. While rates are higher than they were five years ago, they’re well within the historical norm. Here’s a closer look at what causes mortgage rates to rise and how you can still buy a home in the current market.

What causes mortgage rates to increase?

Several factors cause mortgage rates to increase:

• The bond market. Mortgage rates are based on the demand for mortgage-backed securities in the bond market. If investors expect an increase in defaults on the mortgages that make up MBSs, bond yields and interest rates may increase to keep current investors from selling and attracting new ones.
• The Federal Reserve: The Federal Reserve’s mandate is to maximize employment and stabilize prices. The primary tool it uses to achieve those goals is changing the target range for the federal funds rate. When the target range goes up, mortgage rates increase.
• Inflation: A little bit of inflation keeps the economy going, but too much of it can make your money worth less than when you earned it. A higher federal funds rate makes it more expensive to borrow money. If it costs more for businesses and people to borrow money, they spend less, and prices fall.
• Economic growth: In boom times, the unemployment rate is low enough that employers may have difficulty finding workers, which leads to higher wages. Higher wages mean people may be willing to pay more for goods and services, leading to inflation. The Fed may raise rates to slow economic growth and tamp down inflation.

To give you a better context for how mortgage rates have risen and fallen over time, here’s a look at the average interest rate for a 30-year fixed-rate mortgage over the past few decades.

How are interest rates determined?

The interest rate you’re offered on a mortgage will depend on a combination of factors – some of which you have control over and some you don’t.

A home buyer can’t control the interplay between the housing market, economic growth, the Federal Reserve, or inflation. If your home purchase coincides with lower interest rates, you can save money with a fixed-rate loan. If market rates are higher when you buy, it may limit your ability to afford a home. If you can afford a home, it’s possible to refinance when interest rates fall.

You do have control over how you manage your finances. Lenders look closely at your credit score and how much you can afford for a down payment to determine what interest rate to offer you.

Borrowers with a higher credit score typically are offered lower rates. If you make a larger down payment, lenders may offer a lower rate because your larger stake in the property suggests you’re less of a risk.

It also matters how the home will be used. You’ll get a lower rate when buying your primary residence. Lenders expect that if you get into financial trouble, you’ll prioritize the payment on the home you live in. You can expect to pay a slightly higher rate on a loan for a second home or investment property.

Can you still buy a house in this market? Yes – here’s how

Just because interest rates aren’t as low as they once were, it doesn’t mean buying a home is out of reach. Here are steps you can take to be ready to buy a home:

• Assess your financial readiness. A higher interest rate means a higher monthly payment. You can use our mortgage calculator to see how your interest rate will affect your monthly payment and how much you can afford to spend on a home.
• Check your credit report. A good credit score can earn you a lower rate. Be sure to check your report for accuracy and dispute any errors.
• Explore mortgage options. A fixed-rate mortgage will lock in your rate when you close. With an adjustable-rate mortgage, you start off with a slightly lower rate that adjusts every so often. If you expect interest rates to drop, you might consider an ARM and benefit from the lower introductory rate.
• Consider the market where you’re buying. If you’re buying a home in a buyer’s market – where supply exceeds demand – you may have leverage to negotiate better terms. While you still may pay a higher rate, you may be able to convince the seller to pay some of your closing costs.
• Buy mortgage points. Another way to reduce your interest rate is to purchase mortgage points. With points, you pay more upfront in exchange for a lower interest rate. One point typically equals 1% of the total loan amount – though the amount that your interest rate is reduced will depend on the lender.

When should you buy? Timing the market vs. your own personal financial readiness

You can’t control what the market will be like when you finally become financially and emotionally ready to buy your first home. You may hear people say it’s a good time to buy with interest rates low, but if you haven’t saved enough to make a down payment and won’t be able to keep up with your mortgage, it’s not a good time to buy for you.

Some buyers try to time the market and hold off on buying until interest rates drop – even when they can afford to buy in current market conditions. The problem with this method is that you miss the opportunity to build equity.

It’s often said that the best time to buy is when you can afford to. Remember, there are other factors at play. If you’re looking to buy in a local developing market, there may be incentives and motivated sellers. You can take the mortgage rate you can get now and refinance if rates fall in the future.

Tips for getting a good interest rate

Only time will tell if rates drop, remain steady, or increase in the next few years. If you plan on making a home purchase now, consider the following tips to make the most of your money.

Shop around for a lender

It’s always a good idea to shop around for a lender and compare different offers to make sure you’re getting the best loan terms. When choosing a mortgage lender, consider rates, loan terms, the lender's reputation, and the service you’ll receive.

After all, you’ll likely be making payments on your home for a long time, so working with a lender you can trust is crucial. Be sure to compare apples to apples regarding the type of loan.

Once you find a lender, you should also take the time to get preapproved. This will tell you how much the lender is tentatively willing to loan you up to a certain amount. Having a preapproval will help you better understand how much home you can afford and show sellers that you’re a serious buyer who can secure financing.

Get a mortgage rate lock

Many lenders, including Rocket Mortgage®, offer a mortgage rate lock, which allows homeowners to secure a set interest rate during loan processing. If interest rates rise in the interim before closing on your mortgage, you’ll keep the rate you locked in.

But keep in mind that you’ll only reap the benefits of a mortgage rate lock if you can close on your loan during the lock period – otherwise, your locked rate may expire. Rate locks typically last 30 to 60 days, depending on the lender.

Purchase mortgage points

Another way to lower your interest rate is by buying mortgage points from your lender. With points, you’ll pay an upfront fee in exchange for a lower interest rate. One point is typically equal to 1% of the total loan amount – so one point on a $300,000 loan would be $3,000. Lenders usually allow you to buy multiple points or fractions of points, but the amount that each point reduces your interest rate varies by lender.

Know your future options

If you get a mortgage while interest rates are higher than you’d prefer, it may be comforting to remember that you can refinance when they go back down. And if waiting on mortgage refinancing while buying now means securing your dream home and building equity sooner, paying more interest in the meantime is probably worth it.

FAQs about rising mortgage rates

Here are answers to common questions about rising mortgage rates.

Why are mortgage rates still so high in 2025?

Mortgage rates have remained above 6% since mid-2022, when the Federal Reserve increased the federal funds rate to reduce inflation. While these rates may seem high compared to the record-low mortgage rates seen in 2020 at the height of the COVID-19 pandemic, historical rates have been much higher. For context, the average mortgage rate on a 30-year mortgage peaked at 18.44% in October 1981.

Will mortgage rates drop in 2025?

Economists make predictions, but it’s hard to definitively say where mortgage rates are headed because it often depends on the market and economic policy. If the Federal Reserve lowers the federal funds rate this year, that could lead to lower mortgage rates. During the first two Fed meetings of 2025, officials decided to keep the target federal funds rate unchanged at 4.25 – 4.5%.

How do I find the best mortgage rate?

It never hurts to shop around. Mortgage lenders are competitive in their pricing. The question of how to get the best mortgage rate also comes down to personal financial factors like your credit score and down payment size. Unlike the market itself, this is an aspect of rates that is entirely within your control.

What is the current mortgage rate?

The most recent data from Freddie Mac for the week of April 10, 2025, shows that the average rate on 30-year fixed-rate mortgages is 6.62%. However, rates can vary widely depending on your loan term, the size of your down payment, whether you’ll live in the home, and whether your rate is fixed or variable.

When should I lock in my mortgage rate?

If you’re ready to buy a home and anticipate increasing rates, lock your rate as soon as possible. That way, if rates rise between the time it takes to close on your mortgage, you’ll still get to keep the original lower rate.

The bottom line: High interest rates don’t have to hold you back

Getting a low interest rate can save you money, but you can’t control where market rates are when you’re ready to buy. If you have the money to make a down payment and afford your mortgage, you don’t have to put off becoming a homeowner. Remember: Current interest rates are considered normal historically, and you can always refinance to a lower rate later. If you find your dream house, don’t let rising rates stop you from realizing your dream.

Explore your loan options and find out how much home you can afford in 2025.