It’s the million-dollar question for homeowners, soon-to-be homebuyers, and anyone eyeing a new car or personal loan. Will interest rates go down in 2025?
If you’ve been waiting for rates to drop before making big financial moves, you’re not alone. While we can’t predict the future, we can dive into some expert opinions and economic indicators that might point to what’s ahead.
If you’re waiting to take out a personal loan when rates improve, now may be a good time to compare loan offers personalized to your needs. MoneyLion can help you find and compare personal loan offers up to $100,000.
Keep reading to learn more and decide whether to lock in a loan now or keep your fingers crossed for better rates.
Interest and mortgage rate predictions 2025
Before we get into the magic eight ball of rate predictions, let’s cover the basics: how are interest rates and mortgage rates connected? It’s pretty simple. The Federal Reserve (aka “the Fed”) controls interest rates, which, in turn, influence mortgage rates.
When the Fed raises or lowers rates to manage inflation and economic growth, banks follow suit with their lending rates. Higher interest rates = higher mortgage rates. Lower interest rates? You guessed it—lower mortgage rates.
That said, predicting the future is more art than science. According to some experts, the Fed may lower rates in 2025 if the economy slows down. But, as with any prediction, there are no guarantees. For the latest updates, you can check out the Fed’s reports here.
Why the interest rates and mortgage are expected to drop
There’s one big reason economists think rates might drop in 2025: a slowing economy. If economic growth slows and inflation cools, the Fed could reduce interest rates to encourage borrowing and spending.
Think of interest rate reductions as an adrenaline shot for the economy—lower rates make loans cheaper, which can stimulate buying and investment.
Lowering rates also helps businesses borrow money at lower costs, which can encourage expansion, hiring, and overall growth. The Fed has used this tool before when the economy showed signs of slowing, and many experts believe we could see a similar strategy play out in the next few years.
How lower interest rates and mortgage rates can affect your finances
Exactly how lower interest rates can affect your finances will vary depending on individual circumstances and economic conditions. A financial advisor is probably best positioned to help you understand how interest rate changes may affect your specific situation.
That said, here’s a general overview of how lower interest rates tend to play out.
Potentially reduced monthly payments
For those with adjustable-rate mortgages (ARMs) or other variable-rate debts, lower interest rates could mean smaller monthly payments. That’s because the interest portion of your debt would shrink, lowering the monthly amount you owe.
If you’re in the market for a new mortgage, you might even be able to score a lower rate, translating to smaller payments from the get-go.
If you’re planning to buy a home or refinance, now is a great time to focus on boosting your credit score. A better credit score could help you secure the lowest possible interest rate when rates finally drop.
Refinancing may be more attractive
Speaking of refinancing, lower interest rates are prime time to rethink your current loan terms. If you have a mortgage at a higher rate, refinancing to a lower interest rate could save you thousands over the life of the loan. And it’s not just mortgages—you can refinance other types of loans, like car loans and personal loans, to get better deals.
By locking in a lower rate, you’ll reduce your monthly payments and free up some extra cash, which could go toward savings or other financial goals.
Recommended: How to Refinance Credit Card Debt in 5 Steps
Increased purchasing power
When interest rates go down, borrowing becomes cheaper, and that can increase your purchasing power. Lower mortgage rates make homes more affordable, potentially letting you snag that dream house without breaking the bank.
But it doesn’t stop there—lower rates on auto loans and personal loans can also make it easier to finance big-ticket purchases like cars, appliances, or even home renovations.
Impact on savings
The flip side of lower interest rates? Your savings account could take a hit. Lower rates on savings accounts and certificates of deposit (CDs) reduce the amount of interest you earn on your nest egg.
While it’s not exactly the end of the world, it’s worth considering if you’re relying on interest income or building a large emergency fund.
Potential economic effects of lower interest rates
Lower interest rates aren’t just about cheaper loans—they can also have broader effects on the economy. By encouraging borrowing and spending, lower rates can stimulate economic growth.
More consumer spending means businesses make more money, which can lead to expansion, job creation, and overall economic improvement.
But there’s a catch: if borrowing increases too much, it can lead to inflation. More people buying goods and services creates higher demand, which can push prices up. If inflation gets out of hand, the Fed may have to reverse course and raise rates again.
Will 2025 be the year of lower interest rates?
We can’t say for sure what will happen in 2025, but all signs point to the possibility of lower interest and mortgage rates if the economy slows down.
A rate drop could mean lower monthly payments, better refinancing opportunities, and increased purchasing power, but it could also reduce the interest you earn on your savings.
As always, it’s smart to keep an eye on the market and talk to a financial advisor to see how changes might affect your specific situation.
FAQ
Are interest rates going up or down?
While no one can say for certain, experts suggest that interest rates may go down in 2025 if the economy shows signs of slowing.
What are the projected interest rates in 5 years?
No one can predict the future with certainty, but some forecasts suggest that rates could stabilize or even drop, depending on economic conditions.
Why are interest rates so high?
Interest rates are currently high due to efforts by the Federal Reserve to combat inflation. Higher rates help cool down an overheating economy by making borrowing more expensive.
