Navigating the Mortgage Landscape in 2025

If this is the year you buy your first house, move up to your next home or just want to start a conversation about becoming a homebuyer, you will need to get up to speed on today’s mortgage rates. The post-COVID economy has seen rates rise from historic lows only to be tempered in recent years by the Federal Reserve. In this blog, we will discuss how to navigate the mortgage landscape in 2025 so you can plan better as a homebuyer.

Navigating Mortgages in 2025

The mortgage landscape has changed significantly over the last few years since the COVID-19 pandemic and 2025 will be no different. To stay ahead of any rate changes, you will need to research market trends in your target housing area. This includes checking rates with local lenders and reviewing the median home prices to get an idea of housing costs.

This is also the time to get your finances in order so you’ll be ready to apply for a home loan. Review your credit report to make any changes to improve your credit score, which includes paying off credit cards and other debt to show lenders you’re a responsible borrower. You should also be saving for a down payment, an amount that traditionally is about 20% of the home purchase price.

This year’s market is changing rapidly so pay attention to local mortgage trends. Target your research with preferred and potential lenders, such as Travis Credit Union, so you’ll know whom to trust when you are ready to go all-in on your homebuying journey.

What Are the Mortgage Rate Trends for 2025?

Mortgage interest rates are determined by the federal funds rate (the interest rate which banks charge each other to borrow money overnight), which in the past few years has been adjusted by the Federal Reserve to help combat inflation. The Federal Reserve meets regularly to discuss rate adjustments and its most recent actions have been to cut rates in hopes of slowing down inflation.

According to Bankrate.com, interest rates this year are expected to remain around 6%, with a possible spike to 7% for a short time due to the uncertainty of inflation and government debt. If you decide to buy or refinance during this period, be sure your budget is able to accommodate this rate. To get the best rate, ensure your credit score is as high as possible. If you are refinancing a home loan, a good rule of thumb is to refinance to a rate at least 1% lower than your current rate to make the cost of refinancing worth it.

The graph above shows the projected mortgage interest rates for the first quarter of 2025. Interest rates are expected to remain around 6% in 2025 and hold steady throughout the year. Source: themortgagereports.com

What Mortgage Loan Options Are Available?

Mortgages are not one-size-fits-all; there are several types of loans for the wide range of homebuyers out there. Home loan products will vary from the length of terms, interest rates, down payment requirements and more, according to Yahoo Finance. Do your research and find lenders who offer the type of loan you need to fit your budget.

Here are the two main types of mortgages:

• Fixed-Rate Mortgages offer the same interest rate for the life of the loan. The loan term may vary but the longest available is for 30 years. This type of loan makes it easier to fit into your budget because the principal and interest payments will remain the same. Keep in mind that property taxes and homeowner’s insurance will likely increase during the life of the loan. Additionally, your mortgage payment could change if your original mortgage contained private mortgage insurance and, after a few years, you’ve built up enough equity (the value of a mortgaged property after deduction of charges against it) to have it removed from the loan.
• Adjustable-Rate Mortgages: offer an initial lower interest rate that will adjust after the initial period is over. Initial terms for adjustable-rate mortgages are typically five, seven or 10 years. The advantages to this type of loan are that you can purchase a home at a lower rate with a lower monthly payment. The disadvantage is that your rate may increase after the initial term. This type of loan may be best suited for those who intend to sell their home in a few years before their initial term is up.

Do your research to determine the type of loan that fits your needs. Then shop for the best interest rate that fits your budget.

Loan Products and Terms Examples

How Can You Improve Your Mortgage Approval Chances?

Having a higher credit score is essential for obtaining the best interest rate available to you. To achieve this, review your credit report and identify any changes needed to improve your score. For example, pay your monthly bills on time and reduce the amount of debt you carry. Another tip is to keep your debt below 30% utilization of your available credit. The goal is to show lenders you are a responsible borrower who can manage a home loan.

Paying down debt helps keep your debt-to-income ratio (DTI) low, which is another metric that lenders will use to determine your credit worthiness. A low DTI increases the chances your loan will be approved. Visit Travis Credit Union’s Knowledge Base to learn more about improving your credit score and see other related digital courses on credit.

Here are some common items you may be asked to provide your lender when you are ready to apply for a mortgage:

• Proof of income (e.g. W2, filed taxes and pay stubs).
• Identification (e.g. ID, driver’s license).
• Proof of assets (e.g. savings or investment account statements).

What Are the Hidden Costs of Homeownership?

Homeownership has its perks but there are a few key things to keep in mind about your home loan. Property taxes will likely increase over time, which will increase your monthly payment. Homeowner’s insurance can also increase, which is why reviewing your coverage yearly can help you determine if any changes need to be made. Additionally, if you live within a homeowner’s association, you can expect that HOA dues will go up over time. All of these can increase your monthly mortgage payment so budget smartly if changes occur.

Another cost for homeowners is the wear and tear of your home. You should have a good idea on the condition of your home after the property inspection that was required when you bought the home. Inspect your home annually to see if any maintenance is needed to reduce surprise repairs.

An emergency savings account can help you deal with surprise repairs. Using a home affordability calculator can help you decide what hidden costs you will need to budget for.

Is 2025 a Good Time to Refinance?

Refinancing a current mortgage in 2025 will depend on your existing interest rate, your loan term and your ability to qualify for another mortgage. Refinancing when rates are high could increase your monthly payment. If rates are lower, however, you could save money.

Refinancing to access your home’s equity is only recommended when you can get a rate at least 1% lower than your current interest rate. That’s because your new mortgage will include your current balance along with the equity you’ve taken out, which will increase your payment. A better way to borrow is via a home equity line of credit or a home equity loan, which do not affect your first mortgage.

When refinancing a mortgage, be sure to prepare for closing costs or an extension of your loan term. Some things to consider when refinancing include:

• Is my mortgage interest rate high?
• Are market mortgage rates lower than my current interest rate?
• Will I need cash out from my home’s equity?
• What additional closing costs will I incur?
• Will my monthly payment or loan term increase? Can I afford that?
• What mortgage product fits my situation?

How Travis Credit Union Can Help

Travis Credit Union is focused on your financial wellness, including how to prepare you to buy or refinance your home. TCU offers a variety of home loan products with competitive rates, including fixed-rate mortgages, adjustable-rate mortgages, and FHA loans. Contact one of our mortgage loan consultants to get started on your homebuying journey today.