Mortgage Rates Hit 20-Month Low—Here’s What Homebuyers Need to Know Now

Mortgage rates are starting the second half of 2025 on a downward slope that few market watchers predicted back in January, giving would-be buyers and refinancers a welcome—if still narrow—window of opportunity. The latest Primary Mortgage Market Survey from Freddie Mac shows the average 30-year fixed rate tumbling 10 basis points to 6.67 %, marking five straight weeks of declines and the lowest level since mid-April. Fifteen-year fixed loans slid to 6.03 %, while the 5/1 adjustable-rate mortgage (ARM) retreated to 5.92 %. Why rates are falling A softer inflation print for May, coupled with signs of cooling in wage growth, has convinced bond investors that the Federal Reserve is likely finished hiking and could deliver its first cut as early as September. The yield on the 10-year Treasury—closely tracked by mortgage lenders—dipped below 4.20 % this week, its lowest reading since March. “The bond market is trading on the assumption that the Fed’s next move is down, not up, and mortgages are following suit,” says Dana Anderson, senior economist at Colonial Funding Group. What it means for homebuyers Housing affordability is still at its worst level in nearly four decades, but every one-eighth-point drop in rates adds around $25 a month in buying power per $400,000 borrowed. That’s enough to bring roughly 120,000 additional households back into qualifying range, according to Zillow calculations. Realtors in Sun Belt metros such as Phoenix, Tampa and Austin report a noticeable uptick in showings since mid-June as sidelined first-time buyers test the waters again. Inventory is also thawing. New listings nationwide rose 8 % year-over-year in June, the first annual increase since 2021, as move-up owners see a chance to swap their current homes without giving up too much rate advantage. More supply could help moderate price growth, which is still running at a 4.8 % clip, CoreLogic data show. Refinance math finally makes sense for some Roughly 2 million borrowers who locked in mortgages between September and December 2023—when rates briefly poked above 7.5 %—can now shave at least 75 basis points by refinancing, a rule-of-thumb threshold for breaking even within three years. Lender origination platforms report that refi applications are up 38 % over the past month. Rate outlook for the rest of 2025 Most economists see rates drifting lower but staying in the mid-6 % range through December. Fannie Mae forecasts an average 6.5 % 30-year rate in Q4, assuming the Fed trims the federal-funds rate twice. A more aggressive easing cycle—three or four cuts—could drag mortgage rates toward 6 %, but no major forecaster expects a return to the sub-5 % environment of the pandemic boom. Tips to lock the best deal now • Shop multiple lenders within a 14-day span to protect your credit score. • Ask about temporary buydowns; builders are increasingly willing to fund a 2-1 buydown that starts rates in the low-5 % range for the first year. • Consider a portable mortgage if you expect to move again within five years. • Run the numbers on a 15-year or ARM product if cash flow allows—both carry lower rates and can save tens of thousands in interest. Bottom line Mortgage rates have finally cracked below 6.7 %, and while that’s still high by historical standards, it represents the first meaningful relief buyers and owners have seen all year. With inflation cooling and Fed policy likely to shift, locking in before the next round of bidding wars could be the smartest move of 2025’s summer housing season.