Featuring the perspectives of:

Jeremy Collett
Chief Capital Markets Officer, Rate

Craig Turley
CMC, AZ Mortgage Broker

What do you expect to happen with interest rates in 2025?

Jeremy Collett: Markets have been trading decisively risk-on since Trump’s election win, characterized by large rallies in equities and crypto currencies. The inflows to higher returning investments have left the bond market teetering and as a result interest rates have moved materially higher. The outlook for future Fed rate cuts has cooled and our base case suggests we’ll only see 50-75 bps of cuts next year — so rates should be “lower, but slower.” Thirty-year mortgage rates likely remain in the 6s throughout 2025.

Craig Turley: Forecasting mortgage interest rates has been notably difficult. Major associations missed the mark on the unprecedented lows of 2020-2021, and were unprepared for the rapid increase in rates from 2022 to 2024. Inflation, a strong labor market, and new or ongoing tariffs could maintain upward pressure on rates. Despite the unpredictability, a favorable alignment of these factors might see mortgage rates approaching the lower 5% range by late 2025. We currently have a target of 5.25% for the low point in 30-year fixed mortgage rates in 2025.

What will be the biggest challenges and opportunities for lenders in 2025?

Turley: The fluctuating interest rate environment continues to be a primary hurdle. Sudden changes, whether increases or decreases, complicate staffing levels and operational efficiency.

The opportunities for lenders include a refinancing surge. A significant portion of existing mortgages, about 15%, are above 6%. A dip in rates could trigger refinancing as homeowners look to reduce their monthly payments. With approximately 42% of mortgages currently at 4% or above, a drop in rates to 5.5% or lower could make cash-out refinancing more attractive, even for those with slightly lower rates, due to the potential savings over the loan term. As rates become more palatable, buyers who were waiting for a better market might step back into the housing market, increasing demand for mortgage products. Lenders who have effectively managed the sharp rate increases since 2022 and maintained efficiency and profitability could capitalize on market consolidation.

The efficient, well capitalized players might have the chance to acquire or merge with less resilient competitors, thereby expanding their market share and operational capabilities. Opportunities will be abundant for lenders that prepare for these scenarios, and they could find 2025 to be a year of significant growth with strategic advantage in the housing mortgage market.

Collett: 2025 looks like it will be more of the same for mortgage originators, with focus remaining on cost control, incorporating tech to chop origination costs and building upon diverse product offerings to deal with the market challenges of sustained elevated interest rates. There is tremendous uncertainty around impacts of tariffs, deportation and GSE (government sponsored enterprise) reform to also cope with.

What will be the impact of AI on mortgage lending in 2025 and beyond?

Collett: In 2025, I believe AI is most likely to impact areas like compliance and underwriting, with its ability to quickly call up massive amounts of guidelines and regulation data and insert them into the origination process. There is certainly room and demand to incorporate AI functionality involving OCR technology, which is currently used in the conforming world, into the NQM market.

Check out this year’s other predictions below!