This article, written by Ashley Harrison and reviewed by Amber Barkley, originally appeared in Forbes on January 20, 2026.

Mortgage rates spent much of 2025 parked in the upper-6% range, held in place by persistent inflation pressures and a cautious Federal Reserve. That began to shift late in the year as the Fed signaled it was ready to ease policy. Rates slipped ahead of the September 2025 rate cut, the first of the year, and then drifted lower again before the October meeting before continuing their gradual decline as markets anticipated further action.

At the close of its December meeting, the final one of the year, the Fed delivered another 25-basis-point cut, bringing the federal-funds rate down to a range of 3.50% to 3.75%. It’s the third consecutive meeting with a rate reduction and a clear sign that policymakers believe inflation is moving sustainably toward their target.

Mortgage rates have softened alongside these moves, though not as dramatically as borrowers might hope. The average 30-year fixed mortgage rate recently ticked down to about 6.2%, slipping from the mid-6% range earlier this fall. While that’s still well above the unusually low rates seen a few years ago, it marks meaningful progress from the roughly 7.05% peak reached in January 2025. But as the Fed continues easing and bond market conditions stabilize, will mortgage rates see additional downward pressure? Here’s what experts say.

Fed Announces Third Interest Rate Cut in 2025

On December 10, 2025, the Federal Open Market Committee (FOMC) of the Federal Reserve cut its benchmark federal funds rate by 25 basis points, lowering the range to a range of 3.50% to 3.75%. This is the third rate reduction in 2025, following earlier cuts in September and October. The move reflects the Fed’s efforts to support economic growth and employment while inflation shows signs of moderating.

The federal funds rate, which is the overnight borrowing rate for banks, indirectly influences borrowing costs throughout the economy, including on mortgages and other loans. This latest cut is the most significant policy action of the year, signaling that the Fed is taking a more accommodative stance heading into 2026.

Will the Fed Keep Cutting Rates?

Looking ahead, whether the Fed will continue easing remains uncertain. Officials have emphasized that future rate decisions will be data-dependent, taking into account economic growth, labor market conditions, and inflation trends. Fed Chair Jerome Powell noted that while the December 2025 rate cut aims to bolster economic activity, the federal government has released little inflation and economic data recently.

“Very little data on inflation has been released since our meeting in October,” Federal Reserve Chair Jerome Powell noted during his opening remarks. “Although important federal government data for the past couple of months have yet to be released, available public and private sector data suggests the outlook for employment and inflation has not changed.”

What This Means for Mortgage Rates and Home Affordability

Mortgage rates have begun to respond to the Fed’s easing, but changes have been gradual overall. As of early December 2025, the average 30-year fixed mortgage rate was hovering at about 6.2%, down slightly from earlier in the fall. While that’s lower than the peaks seen in early 2025, mortgage rates remain above the historically low levels of recent years.

Although the Fed does not directly set mortgage rates, its policy decisions influence the broader interest rate environment. Home affordability remains constrained by high home prices, persistent borrowing costs, and limited inventory, factors the Fed cannot directly address.

For prospective homebuyers in early 2026, this environment suggests that monthly mortgage payments could become slightly more manageable if rates remain near current levels. A modest decline in rates of a quarter point or so could reduce payments by a few hundred dollars per month on an average loan, easing some financial pressure — but affordability will still largely depend on home prices and personal financial circumstances.

Should Buyers Wait for Rates to Fall?

Some experts caution that waiting for mortgage rates to drop further can be a risky strategy.

“If you find the right home and can afford the monthly payments, you should take the opportunity in front of you,” says Wendy Hoekstra, Vice President of Retail Lending. “If rates decline, more buyers will re-enter the market, competition will increase and sellers will regain leverage.”

What’s Next?

The FOMC meets eight times per year. The next policy session is scheduled for January 27–28, 2026.

Subsequent Fed meetings are set for:

March 17–18, 2026

April 28–29, 2026

June 16–17, 2026

July 28–29, 2026

September 15–16, 2026

October 27–28, 2026

December 8–9, 2026

At each of those meetings, the Fed will assess economic conditions, including inflation, employment and growth, before deciding whether to adjust the rate again.

Mortgage Rate Predictions for 2026

Here’s how some experts predict market conditions will affect the average 30-year-fixed mortgage rate:

National Association of Realtors (NAR): Rates will stay in the mid-6% range in the months ahead

NAR forecasts that mortgage rates will decline from the mid-6% range of 2025 to possibly 6% in 2026. “As we look at possible reductions in the Fed Funds rate, we could see a domino effect into the mortgage market, but it’s not a one-to-one and it won’t necessarily happen overnight,” said Jessica Lautz, deputy chief economist at the NAR, in a recent post.

Fannie Mae: Mortgage rates are forecasted to be 6.3% leading into 2026

“We forecast mortgage rates to end 2025 and 2026 at 6.3% and 5.9%, respectively, compared to 6.4% and 5.9% in our prior forecast,” per Fannie Mae’s October Economic and Housing Outlook.

Mortgage Bankers Association (MBA): Rates will average 6.4% in the fourth quarter and remain steady at the start of 2026

The MBA lowered its average quarterly mortgage rate projections, according to the MBA’s October Mortgage Finance Forecast. The trade association expects the 30-year fixed-rate mortgage to end the year at 6.4%, down from a previously forecasted rate of 6.5%. The MBA expects this 6.4% average rate to continue in the first quarter of 2026—no change from its previous forecast.

Refinancing: Act Now or Wait for Better Rates in 2026?

As far as waiting for better rates, most experts say it’s risky to try to time the market.

Whether this is the right time for you to refinance depends on several factors, including the mortgage rate you got when you last financed your home and how long you plan to stay in the home. Refinancing comes with closing costs, just like your original mortgage, so you want to make sure you’re in the home long enough to recoup those costs and start saving on the lower refinance rate.

The number of times the Fed cuts interest rates and by how much may have some influence on mortgage rates, so monitoring the news can help you monitor trends. Refinance rates tend to be higher than purchase rates, but the two typically move in tandem.

If you must refinance when refinance rates are high, you still have options to buy down the rate.

Should You Refinance If You Already Have a Good Rate?

Over 40% of U.S. mortgages were originated in 2020 and 2021, when interest rates were at record lows. There were also some 14 million mortgage refinances during the same time.

If you were lucky enough to secure a mortgage during that period, this may not be the ideal time to refinance, considering most experts predict mortgage rates will remain well above 6% in 2026.

Still, there are circumstances when you may want to consider refinancing, specifically when it comes to aligning your mortgage with your long-term financial goals.

Many people associate refinancing with lowering their interest rate, but that’s not always the full picture. For example, a borrower could choose to refinance to adjust their loan term, change from an adjustable-rate mortgage to a fixed-rate mortgage for stability, or to switch loan types to help lower mortgage insurance costs. A cash-out refinance could make sense even when you have a low mortgage rate if you need the cash flow or want to consolidate other debt.

Recent Refinance Trends

Refinance activity has continued to increase in recent weeks, as mortgage rates dropped in response to the rate cuts in 2025.

“This recent decline in rates spurred the second consecutive week of increased refinance activity, driven mainly by conventional refinance applications,” Joel Kan, MBA’s vice president and deputy chief economist, stated in the latest weekly survey.

Kan noted that applications mainly increased for fixed-rate loans, while applications for adjustable-rate mortgages (ARMs) fell. Government-backed loan applications had also dropped due to the government shutdown.

 

About First Community Bank and Trust
First Community Bank and Trust is a privately-owned bank. Established in 1916 First Community Bank and Trust has been serving Beecher, IL, Peotone, IL and the surrounding communities for over 109 years. Our commitment to providing the best banking products and services is matched only by our outstanding customer service. We offer traditional community banking services, including mortgage, consumer, and commercial lending, as well as state of the art electronic banking services.

Press Contact:
Steve Koehn, Senior Vice President
First Community Bank and Trust
(708) 946-2246

 

###