Mortgage rates may fall over the next five years, but they could also go back to 7%. A main forecast expects the average 30-year fixed mortgage rate to be around 6.05% in 2027.
(Pexel/Representative image) (Pexel)
Rates could slowly fall after that. But there is also a risk that rates could rise to around 7% by 2027. This could happen if inflation remains high and the US government keeps borrowing more money, pushing bond yields higher.
The 10-year US Treasury yield is an important sign for mortgage rates. Mortgage rates usually move in the same direction as the 10-year Treasury yield. However, mortgage rates are normally higher because lenders add an extra amount to cover their risks, according to Yahoo Finance.
Treasury yield forecast
Economists expect the 10-year Treasury yield to slowly fall in the coming years. Michael Wolf, a global economist at Deloitte, said the Federal Reserve may keep interest rates unchanged until December 2026. He expects the Fed’s main interest rate to reach 3.125% by the middle of 2027. Wolf expects the 10-year Treasury yield to stay near 3.9% from the third quarter of 2027 through 2030.
Deloitte’s forecast puts the 10-year Treasury yield at:
- 2026: 4.05%
- 2027: 3.95%
- 2028: 3.92%
- 2029: 3.92%
- 2030: 3.92%
Other forecasts are less optimistic about how far Treasury yields will fall. Goldman Sachs analysts expect the 10-year Treasury yield to eventually rise to about 4.5% by 2035. The Congressional Budget Office expects the yield to reach 4.1% by the end of 2026 and rise gradually to about 4.3% by 2030.
Mortgage rate spread
The gap between Treasury yields and mortgage rates is another important factor. This gap is known as the spread. For example, if the 10-year Treasury yield is 4% and the spread is 2 percentage points, the mortgage rate would be about 6%.
The mortgage-Treasury spread has been unusually high in recent years. From 2010 to 2020, the spread was generally below 2 percentage points and was often close to 1.5 percentage points. In 2022-2024, it averaged about 2.4 percentage points, according to the analysis cited by Yahoo Finance.
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The spread has recently started to come down. As of March 5, the 10-year Treasury yield was 4.09%, while the 30-year fixed mortgage rate was 6.00%. That gave a spread of about 1.91 percentage points.
2027 mortgage rates
Artificial intelligence was used to estimate how the spread could change. Anthropic’s Claude suggested that the spread could gradually narrow as Federal Reserve quantitative tightening, or QT, winds down and demand for mortgage-backed securities improves.
Under the base-case forecast, mortgage rates could average around 6.25% in 2026. The forecast assumes a 10-year Treasury yield of 4.10% and a mortgage spread of 2.15 percentage points.
Mortgage rates could then fall slightly to about 6.05% in 2027. The forecast assumes the 10-year Treasury yield will be around 4%, with a 2.05 percentage-point spread. The base case sees rates continuing to decline after 2027. The forecast puts mortgage rates at around 5.85% in 2028, 5.75% in 2029 and 5.70% in 2030.
Could rates hit 7%?
That means the main forecast does not expect mortgage rates to return to 7% by 2027. Instead, it expects rates to remain close to 6% and then gradually move lower. But the bear case gives a very different picture. If inflation remains above 2.5% and large U.S. government deficits push Treasury yields higher, the 10-year yield could stay around 4.4% to 4.6%.
A wider mortgage spread could push rates back to 7%. Claude’s bear-case estimate assumes the spread could widen to about 2.4 percentage points because of market volatility and mortgage-backed securities supply pressures. Under this scenario, 30-year mortgage rates could climb to around 7% by 2027. The bear case does not expect 7% rates to last forever. Under that scenario, mortgage rates could ease to about 6.60% by 2030 after reaching around 7% in 2027.
Mortgage rates could fall
A more positive economic scenario could bring rates down much further. In the bull case, the Federal Reserve successfully brings inflation back to its 2% target without causing a major recession. Gradual rate cuts through 2027 could pull the 10-year Treasury yield down to around 3.3%.
The bull case could bring the 30-year mortgage rate close to 5% by 2030. This would happen if the mortgage spread returns closer to its long-term average of about 1.7 percentage points, while demand for mortgage-backed securities improves.
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Mortgage rate risks
A 3% mortgage rate is not part of the current five-year forecasts. The analysis says there is no forecast expecting mortgage rates to reach 3% over the next five years. Rates could fall that low only after an unusually large economic shock, similar to the conditions surrounding the Great Recession or the pandemic.
The biggest warning is that long-term mortgage forecasts can change quickly. A recession could cause Treasury yields to fall sharply, while large government deficits could push yields higher. Geopolitical events can also create sudden moves in interest rates.
The mortgage-Treasury spread could also change the outlook. Even if Treasury yields move as expected, a much wider spread could push mortgage rates higher, while a narrower spread could bring them down faster.
Federal Reserve policy remains another major risk. A major change in the Fed’s approach to interest rates could make the current mortgage forecasts inaccurate.
So, could mortgage rates hit 7% again by 2027? Yes — but that is the bear-case scenario, not the main forecast. The base case points to a rate of about 6.05% in 2027, while the downside scenario sees rates reaching around 7% if inflation and fiscal pressures remain strong.
For homebuyers and homeowners who want to refinance, waiting for a big drop in mortgage rates may not be the best choice. The five-year forecast does not show a major fall in mortgage rates. Rates could also change because of unexpected economic events.
In the main forecast, mortgage rates are expected to stay near 6% in 2027. They could then slowly fall to around 5.7% by 2030. However, if inflation stays high and Treasury yields rise, mortgage rates could go back up to around 7% in 2027. Rates could fall again after that.
