Where will mortgage rates be in 2025, and what does it mean for today's real estate investor?

A question every real estate investor should have an answer to – Where will mortgage payments be in five years from today?

As backdrop, the following figure is a look at the monthly mortgage payment for a median priced home in the U.S., assuming the historically reported 30-year mortgage rate and a 20% down payment on the home.

The most recent tick for August 2020 is $1,094 per month. For most households, this is affordable. The typical mortgage has been trending down for a while now after peaking in November 2018.

The question now is – What will the picture look like in August 2025, five years from today?

Is it possible that the 30-year mortgage rate will drop below $1,000 – something markets haven’t seen since the aftermath of the global financial crisis? Perhaps it will reverse course and continue an upward trajectory – potentially reaching $1,400 by 2025?

The Drivers Behind the Movements

In thinking about what the future might hold, it’s often helpful to look at the drivers behind the movements – in this case factors that influence the monthly mortgage payment.

There are two main factors – inflation, which drives mortgage rates, and home prices, which are a response to economic conditions and local supply/demand factors.


First, inflation. As of writing, inflation in the U.S. sits at 1% year-over-year. This is historically low. The average since 1995 is 2.2%. If current Federal Reserve Chairman has his way, the Fed’s inflation target will likely be higher than 2%, perhaps upwards of 3%. What does 3% inflation from 2021 to 2025 mean for the medium monthly mortgage payment?

Home Prices

Second, home prices. As of writing, national home prices are floating at 4.3% year-over-year. With the exception of the Great Recession, this is around where home prices have historical grown. What does the medium mortgage payment look like with 4.3% price growth from now until 2025?

The Mortgage Payment in 2025

Where will the mortgage payment be in 2025? If one assumes 4.3% home price growth and a 5.1% 30-year mortgage rate, the current monthly mortgage payment for a median priced home would grow from $1,095 to $1,562, an increase of 42%.

What does a 42% increase in the monthly mortgage rate over the next five years mean for a real estate investor? It means that now is a great time to finance a rental property presuming one is confident in the time period in which one will attempt to sell.

Summing Up

In sum, every investor should have an idea of where mortgage payments will be in five years from now. One’s answer to this question will affect the value of every real estate transaction – directly or indirectly – for several years to come.