Mortgage rates have remained elevated in recent years, but where could they go over the next five years? And should homebuyers or homeowners wait for a significant decline before purchasing or refinancing?
Mortgage rates are influenced by several economic factors, including 10-year U.S. Treasury yields, inflation, Federal Reserve policy and demand for mortgage-backed securities. These indicators can offer clues about the future direction of mortgage rates.
Mortgage rates typically follow the government bond market
One of the most useful indicators for forecasting mortgage rates is the yield on the 10-year U.S. Treasury note. Mortgage rates and 10-year Treasury yields generally move in the same direction, although mortgage rates are typically higher because lenders account for additional risks.
The difference between the Treasury yield and the mortgage rate is known as the spread. That spread must be considered when estimating future 30-year fixed mortgage rates.
To develop a five-year forecast, economists’ projections can be combined with data compiled using artificial intelligence.
Economists’ five-year forecast for Treasury yields
Michael Wolf, a global economist at Deloitte Touche Tohmatsu Ltd., outlined the firm’s expectations for Treasury yields over the next five years in a December update from the Deloitte Global Economics Research Center.
“We assume the Fed leaves rates unchanged until December 2026. The average federal funds rate reaches its neutral 3.125% in the middle of 2027,” he wrote. Wolf said the 10-year Treasury yield will ease gradually through the second quarter of 2027, “to settle at 3.9% from the third quarter of 2027 through the end of 2030.”
Other forecasts point to somewhat higher long-term yields. Goldman Sachs analysts, for example, expect the 10-year Treasury yield to rise over the long term to 4.5% by 2035.
The Congressional Budget Office projects that the 10-year Treasury yield will reach 4.1% by the end of 2026, then rise gradually to about 4.3% by 2030.
Anthropic’s Claude artificial intelligence system compiled these projections into a consensus forecast used for the mortgage rate estimates below.
Read more: Why mortgage rates increased after the Federal Reserve rate cut
Estimating the mortgage rate spread
The 10-year Treasury yield and the 30-year fixed mortgage rate are separated by a spread. In recent years, that difference has generally been on either side of 2.5 percentage points. That is considerably higher than the spread between 2010 and 2020, when it was below two percentage points and often near 1.5 percentage points.
Using a 2-percentage-point spread, the relationship can be illustrated as follows:
- 10-year Treasury rate = 4%
- Spread = 2 percentage points
- Mortgage rate = 6%
As a recent example, the 10-year Treasury yield was 4.09% and the 30-year fixed mortgage rate was 6.00% on March 5. The spread was 6.00 – 4.09 = 1.91 percentage points.
The spread was below two percentage points, which is one reason mortgage rates had declined.
Claude AI suggested using a variable spread that gradually narrows:
“The spread between 30-year fixed mortgage rates and the 10-year Treasury is driven by prepayment risk, credit risk, and supply/demand for mortgage-backed securities (MBS). The Federal Reserve’s quantitative tightening (QT) program widened spreads after 2022 as private markets absorbed more MBS. Spreads have begun normalizing in late 2025 and are expected to continue tightening.”
Five-year mortgage rate forecast
Using the Treasury yield projections and Claude’s suggested base-case spread between the bond market and 30-year fixed mortgage rates, a five-year mortgage rate forecast can be developed.
Five-Year Mortgage Rate Forecast
Read more: See today’s best mortgage rates.
Bull and bear cases for mortgage rates
The base case assumes gradual spread normalization, easing inflation and modest Federal Reserve policy changes. Claude AI also prepared more optimistic “bull” and pessimistic “bear” scenarios.
Bull case: A soft economic landing
“The Fed successfully guides inflation back to 2% without a hard recession. Gradual FOMC rate cuts through 2027 pull the 10-year yield to 3.3% as the term premium compresses. The MBS spread normalizes toward its long-run average of 170 bps as QT ends and private MBS demand recovers. Result: a 30-year fixed rate near 5.00% by 2030.”
Bear case: Persistent inflation and fiscal pressure
“Inflation remains sticky above 2.5% and mounting U.S. fiscal deficits push the term premium higher, keeping the 10-year yield near 4.4 to 4.6%. The spread widens to 240 bps as market volatility and MBS supply weigh on secondary markets. Mortgage rates climb toward 7.00% by 2027 before easing slightly to 6.60% by 2030.”
How accurate are five-year mortgage rate forecasts?
These are long-range estimates based on historical patterns and broad economic expectations. The projections could change substantially if any of the following occurs:
- 10-year Treasury yields significantly outperform or underperform the forecast. Yields could fall sharply during a severe economic setback, such as a recession, or rise because of mounting government deficits. Geopolitical unrest and other unexpected events could also cause major volatility.
- The spread between Treasury yields and mortgage rates narrows or widens dramatically.
- Federal Reserve monetary policy changes substantially.
Mortgage rate predictions for the next five years: FAQs
Will mortgage interest rates ever return to 3%?
No current forecast predicts a 3% mortgage rate within the next five years. However, it would have been difficult to anticipate the exceptionally low home loan rates that followed the Great Recession and the global pandemic. Events of that magnitude are difficult to forecast, but they can push mortgage rates sharply lower.
What will mortgage rates be in 2027?
The analysis above predicts that mortgage rates will be near 6% in 2027.
Will mortgage rates drop in the next five years?
Based on the estimates above, mortgage rates are not expected to fall significantly over the next five years. A recession or another unexpected economic disruption, such as war, a financial collapse or another pandemic, could alter that outlook.
Is it better to fix a mortgage rate for two or five years?
Borrowers considering an adjustable-rate mortgage with an initial fixed-rate period should first consider how long they expect to remain in the home. They can then evaluate the long-term mortgage rate outlook. In many cases, the best option is the initial fixed-rate term that best fits the borrower’s current budget.
Read more: 8 strategies for getting the lowest mortgage rate possible
