Mortgage rate forecast: January 2026

The Federal Reserve might still cut interest rates again in January. But mortgage rates barely budged after the Dec. 10 move by the central bank to trim its benchmark rate by a quarter-point.

“It’s a reminder that mortgage rates don’t follow Fed cuts directly, and they respond to broader expectations around inflation, employment and long-term economic strength,” says Samir Dedhia, CEO of One Real Mortgage.

The Federal Reserve is likely to pause their cuts in January, and the jury is still out on whether we can expect improvement in hiring or inflation. This environment isn’t conducive to falling rates just yet.

— Stephen Kates Financial Analyst, Bankrate

As of Dec. 17, the average 30-year mortgage rate was 6.30%, according to Bankrate’s weekly lender survey. 

“The Federal Reserve is likely to pause their cuts in January, and the jury is still out on whether we can expect improvement in hiring or inflation,” says Stephen Kates, financial analyst at Bankrate. “This environment isn’t conducive to falling rates just yet. Patient rate watchers can expect some relief later in the year, however.”

Just to make mortgage rate trends even more confusing, the Fed doesn’t set rates — but it does influence them. “While the Fed cut the short-term federal funds rate [in December], communication from the Fed chair suggests it is possible that the central bank will pause on additional rate cuts in the near term — one reason why we are not seeing a decline in mortgage rates,” says Lisa Sturtevant, chief economist at Bright MLS, a listing service in the mid-Atlantic region.

Will mortgage interest rates go down again?

The possibility of sub-6% mortgage rates has grown somewhat stronger. Fannie Mae predicts rates will end 2026 at 5.9%.

“Looking ahead, the December employment report and CPI should provide a cleaner read on labor and inflation trends ahead of the Fed’s January 28 meeting,” says Jeff DerGurahian, head economist at loanDepot.

Current mortgage rate trends

Higher mortgage rates have kept homeowners clinging to lower-cost loans, a trend known as the lock-in effect. Meanwhile, the median national home price clocked in at $409,200 in November, a record high for the month, according to the National Association of Realtors.

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What to do if you’re getting a mortgage this year

• Improve your credit score. A lower credit score won’t prevent you from getting a loan, but it can make all the difference between getting the lowest possible rate and more costly borrowing terms. The best mortgage rates go to borrowers with the highest credit scores, usually at least 780.
• Save up for a bigger down payment. Putting more money down upfront can help you obtain a lower mortgage rate, and if you put down at least 20% of the purchase price, you’ll avoid mortgage insurance, which adds costs to your loan. If you’re a first-time homebuyer and can’t cover a 20% down payment, there are loans, grants and programs that can help. The eligibility requirements vary by program but are often based on factors like your income.
• Understand your debt-to-income ratio. Your DTI ratio compares how much money you owe to how much money you make, specifically your total monthly debt payments against your gross monthly income. Not sure how to figure out your DTI ratio? Bankrate has a calculator for that.

FAQs

• How are mortgage rates determined?

  Mortgage rates are not directly set by any one entity; they grow from a complicated mix of economic factors. Lenders typically set their rates based on the return they need to make a profit after accounting for risks and costs. The Federal Reserve gets a lot of attention, but it doesn’t directly set mortgage rates, either. The closest proxy for mortgage rates is the 10-year Treasury yield: Historically, the typical 30-year mortgage rate has been about 2 percentage points higher than the 10-year Treasury yield. But since the pandemic, that “spread” has been closer to 3 percentage points.

• When should I refinance my mortgage?

  Deciding when to refinance is based on many factors. If rates have fallen since you took out your mortgage, refinancing might make sense. A refi can also be a good idea if you’ve improved your credit score and could lock in a lower rate. A cash-out refinance can accomplish that as well, plus give you the funds to pay for a home renovation or other expenses.