The popular 30-year fixed averaged 6.91% to begin 2025, per the latest Freddie Mac data.
This means mortgage rates are now on par with 2001 levels, when the 30-year averaged 7.03% in the month of January.
During that year, the 30-year fixed basically remained flat, ending 2001 at 7.07%.
This got me to thinking. What if mortgage rates do nothing in 2025, sort of like they did in 2001?
It’s certainly a possibility and something to think about and prepare for if you’re a prospective home buyer (or a loan originator).
2001 Mortgage Rates in 2025
Jan: 7.03%
Feb: 7.05%
Mar: 6.95%
Apr: 7.08%
May: 7.15%
Jun: 7.16%
Jul: 7.13%
Aug: 6.95%
Sep: 6.82%
Oct: 6.62%
Nov: 6.66%
Dec: 7.07%
After a really good decade for mortgage rates, the 30-year fixed is back closer to its long-term average of around 7.75%.
It’s actually a bit better than that since it’s hovering around 7% today, which puts it very close to levels last seen in 2001.
If you look at that year, listed above by month, which is now a staggering 24 years ago, the 30-year fixed did very little.
It stayed within a tight range just over 7%, dipping slightly below 7% late in the year, but bouncing back to where it started to close out the year.
What if mortgage rates do the same thing in 2025?
Tip: Even if mortgage rates stay flat year-over-year, there will be peaks and valleys during the year and thus opportunities, so be ready to go if you’re in the market to refinance a mortgage!
Maybe We’ll See Sideways Mortgage Rates This Year
While we keep talking about whether mortgage rates will go up or down in 2025, no one is talking about sideways.
There’s a chance they could do very little and kind of just hover around current levels for the next 360 days.
If that’s the case, home buyers will need to just get used to this new normal and adjust accordingly.
Of course, home sellers will also need to get used to this new normal. And that could entail additional and/or more aggressive price cuts as affordability remains out of reach for many.
Either way, we don’t seem to be framing the conversation around a stable mortgage rate.
We keep thinking they’re either going to go higher or lower, but maybe we should just focus on what happens if they do very little to nothing at all.
It might be time to start exploring different mortgage options beyond the 30-year fixed.
I mentioned this in an earlier post. The 30-year fixed just isn’t a good deal anymore, yet it still remains the default option for home buyers today.
Problem is we still can’t seem to forget the toxic mortgages that were around in the early 2000s, many of which were ARMs.
Those mortgages led to the biggest housing crash in our lifetime, though it might not be fair to compare today’s ARMs to those ARMs.
There is a middle ground in an adjustable-rate mortgage that is underwritten responsibly.
One that offers a fixed interest rate for 5 to 7 years or longer, and provides a healthy discount for the future rate adjustment.
Everyone seems to think mortgage rates will get better somewhat soon whether it’s this year or next.
Yet they continue to pay a premium for a 30-year fixed rate, which can be one percent higher than alternatives.
So one could argue that an arm could actually provide a solution to affordability woes and bridge the gap to something lower and more permanent.
Either way, if we consider rates to be at the top, close to the top, or already on the way down why do we keep going with a 30-year fixed?
2001 Mortgage Rates Were Very Flat But Came Down in 2002
Now back to those 2001 mortgage rates. The best way to describe them was flat. Very, very flat.
However, they averaged 8% in the year 2000, so that 7% average was a relative bargain.
And by the next year, they came down about another full percent. So 8% down to 7% and on to 6%.
Then they sort of stayed in a range between the mid-5s and mid-6s until the housing market crashed in 2008.
There was a refinancing boom around 2003 because mortgage rates got close to the 4% range and people were able to save a lot of money via a rate and term refinance.
Or tap their equity via a cash out refinance and borrow on the cheap after facing much higher rates in the past.
Perhaps that’s how it’ll play out over the next few years as well. We might see all those 7%+ mortgage holders trade in their old loans for a 5% rate.
But if there is an expectation that rates are pretty much topped out, it might make sense to choose a different mortgage product today, such as an ARM.
The caveat is being eligible for a refinance in the future if and when rates drop.
There is always some risk you won’t qualify, perhaps if you have lower credit score or happen to lose your job.
One of these events could jeopardize a loan application and put a refinance out of reach. Though even then there’s an argument that a loan modification could come to the rescue.
I still believe rates will ease because if you look at mortgage rate spreads, they are still pricing in a lot of prepayment risk, which means lenders don’t expect today’s loans to last very long.
But perhaps they’ll be stuck for much of 2025 before they move lower. So will we see another 2001 when it comes to mortgage rates? That’s anyone’s guess, but it wouldn’t be something to rule out.
Perhaps MBS investors and lenders are happy with where rates are now and are unwilling to budge much given the uncertainty surrounding the economy. And the incoming administration.
So we might need to get used to them and learn to tolerate them for a bit longer. Or start seriously exploring alternatives like ARMs that offer a discount for loans that aren’t fixed for life.
Before creating this site, I worked as an account executive for a wholesale mortgage lender in Los Angeles. My hands-on experience in the early 2000s inspired me to begin writing about mortgages 18 years ago to help prospective (and existing) home buyers better navigate the home loan process. Follow me on Twitter for hot takes.