3 reasons mortgage rates could fall again soon

2025 was an eventful one for homebuyers and owners looking to refinance. After starting in January at over 7% for 30-year mortgage terms, rates declined noticeably. That was helped, in part, by changing economic conditions and three consecutive rate cuts from the Federal Reserve, leading mortgage interest rates to hit 3-year lows multiple times in the final months of 2025.

They've remained competitive in the opening days of 2026, too. With an average rate of just 5.99% for a 30-year mortgage purchase, buyers have cost-effective opportunities to explore in a way that wasn't realistic at this point in 2025 or 2024. And rates here can continue to decline, perhaps even in surprising ways and due to unforeseen circumstances. However, while difficult to do with precision, determining when these next rate drops will occur can be the difference between securing a cost-effective mortgage loan or having to further delay a purchase or refinance application.

So, when will mortgage rates actually fall again next? It could be sooner than anticipated. Below, we'll break down three factors that could cause the next mortgage rate decline.

See how low your current mortgage rate offers are here.

3 ways mortgage rates could fall again next

The following three factors, either individually or in combination, can help push mortgage rates further into the 5% range:

The unemployment rate could tick up again

The unemployment rate, according to the most recently released report, jumped to 4.6%, the highest level in years. The next report, set for a January 9 release date, could go a long way toward impacting future Fed rate policy, or it could encourage the bank to keep rates on hold. 

Should the unemployment rate rise even further, the Fed may be encouraged to stimulate the economy via lower rates. But if it stays constant or even drops slightly, it's unlikely to encourage the Fed to reduce rates further, at least for the moment. So keep an eye out for the next unemployment numbers as they can have an indirect impact on mortgage interest rates in either direction.

Shop for mortgage rates and lenders online today.

The inflation rate could fall again

The next inflation report from the Bureau of Labor Statistics is scheduled for a January 13 release. And if it shows another decline, as the most recent one did, down to 2.7%, it could encourage lenders to reduce their rate offers, even if by a small amount. 

A lower inflation rate, after all, often encourages additional Fed rate cuts, and with another Fed meeting on the calendar for the final days of the month, a reduction here could reverberate throughout the broader lending climate. And that could be good news for homebuyers who were waiting for the next rate drop.

The Fed could cut rates again

The likelihood of another Fed rate cut at the central bank's next meeting on January 28 is low as of January 6 (around 18% according to the CME Group's FedWatch tool). But that can easily change in the next few weeks, especially if the Fed grows more comfortable with its progress in lowering inflation and keeping unemployment in check. 

It's also important to note that mortgage rates can change before a Fed cut is even announced, as lenders often price in these cuts in advance. But they also have the potential to decline, even absent a formal Fed rate cut, if the bank confidently talks about future rate cuts in its post-meeting press conference. So keep an eye out for mortgage rate changes in the closing days of the month. You may have a small window of opportunity to exploit.

The bottom line

After material improvements in the mortgage rate climate last year, borrowers are understandably looking forward to the next rate drops in 2026. These will be difficult to time, but can become a reality again if the inflation rate declines, the unemployment rate rises or the Fed moves to cut its benchmark rate yet again. But since it's difficult to determine when, exactly, lenders will respond to these developments, borrowers should consider monitoring the mortgage rate climate daily for timely opportunities to act. It's been a few years since it was actually worth monitoring mortgage rates with any sort of regularity, but it could be valuable to do so now.