Mortgage rates continue to rise as 2026 nears its fourth quarter. What is the outlook for home loan rates in the next five years? Should you wait for mortgage rates to fall significantly before buying or refinancing? Mortgage interest rates are determined by several factors, all of which can give us clues about the future. Let’s take a closer look at mortgage rate predictions over the next five years.
Mortgage rates are tuned to the government bond market
One of the most useful indicators for predicting mortgage rates is the yield on the 10-year U.S. Treasury note. Mortgage rates and 10-year Treasury yields typically move in the same direction, although mortgage rates are usually higher because lenders factor in additional risks. This difference is known as the spread, and we’ll account for it when estimating where mortgage rates could go.
With that in mind, the first step is to look at where economists believe Treasury yields are headed over the next five years. To build a forecast, we’ll combine expert economic projections with data compiled using artificial intelligence.
Economists’ 5-year forecast for Treasury rates
Michael Wolf, a global economist at Deloitte Touche Tohmatsu Ltd., outlined the firm’s Treasury yield expectations over the next five years in a July update from the Deloitte Global Economics Research Center.
“Stronger inflation, coupled with solid payroll growth, will likely cause the Federal Reserve to raise interest rates by the end of this year. However, the rates are unlikely to stay heightened for long. We expect the Fed to announce a rate cut before the end of 2027. We expect oil prices to move lower next year, which will cause inflation to move lower on a sequential basis,” he wrote.
Here’s the Deloitte 10-year Treasury five-year forecast.
| Year | Yield |
|---|---|
| 2027 | 4.20% |
| 2028 | 4.10% |
| 2029 | 4.00% |
| 2030 | 4.00% |
| 2031 | 4.00% |
Source: Deloitte Touche Tohmatsu LTD
Other forecasts point to somewhat higher long-term yields. For example, Goldman Sachs analysts expect the 10-year Treasury to rise over the long term to 4.5% by 2035.
Meanwhile, the Congressional Budget Office (CBO) projects that the 10-year Treasury yield will reach 4.1% by the end of 2026, rising gradually to about 4.3% by 2030.
Anthropic’s Claude artificial intelligence compiled the predictions into a consensus forecast, which we will utilize below.
Estimating a five-year spread
As mentioned, the 10-year Treasury and 30-year fixed mortgage rates are separated by a spread. That difference between the two has been on either side of 2.5 percentage points in recent years. That’s a significant change when compared to the spread from 2010 to 2020, when it was under two percentage points (and often near 1.5).
Using a 2.0 percentage point spread, here’s an example of how Treasurys and mortgage rates compare:
10-year Treasury rate = 4%
Spread = 2 percentage points
Mortgage rates = 6%
Here’s a recent example: As of September 9, the 10-year Treasury yield was 4.88%, and the 30-year fixed mortgage rate was 6.76%. The spread was 6.76 – 4.88 = 1.88 percentage points.
Claude AI suggested using a variable spread that slowly declines:
“The spread is stickier than previously assumed. Fannie Mae and Freddie Mac’s MBS buyback program, launched January 8, 2026, has prevented the spread from widening further but has not meaningfully narrowed it.”
The base case for Claude’s spread assumptions now begins at 2.00 percentage points in 2027, gradually declining to 1.90 percentage points in 2031.”
Using these spread estimates, we can now complete our five-year mortgage rate forecast.
The five-year mortgage rate forecast
Using the Treasury forecast, we add the Claude-suggested base case assumed spread between the bond market and 30-year fixed mortgage rates to compile a five-year forecast:
Five-Year Mortgage Rate Forecast
Using the Treasury forecast from above, we add the Claude-suggested base case assumed spread between the bond market and 30-year fixed mortgage rates to compile a five-year forecast:
| Year | Treasury forecast | Percentage Point Spread | Mortgage rate forecast |
|---|---|---|---|
| 2027 | 4.20% | 2.00 | 6.20% |
| 2028 | 4.10% | 1.95 | 6.05% |
| 2029 | 4.00% | 1.95 | 5.95% |
| 2030 | 4.00% | 1.95 | 5.95% |
| 2031 | 4.00% | 1.90 | 5.90% |
Considering bull and bear cases
While this forecast is for a base case with gradual normalization to the spread, the easing of inflation, and modest Fed monetary policy, Claude AI also prepared a “bull” estimate and a “bear” estimate:
While this forecast is for a base case with gradual normalization to the spread, the easing of inflation, and modest Fed monetary policy, Claude AI also prepared a “bull” estimate and a “bear” estimate:
- The bull case: a soft landing. “The Fed successfully guides inflation back to 2% without a hard recession. FOMC rate cuts resume through 2027–2028, pulling the 10-year yield toward 3.30%. The MBS spread narrows to 1.75 pp by 2031 as the Fed’s MBS runoff nears completion, and Fannie/Freddie buybacks continue. The 30-year mortgage rate falls to approximately 5.05% by 2031 — meaningfully lower than today but well above the pre-pandemic era.
- The bear case: persistent inflation and fiscal pressure: “Inflation remains above 2.5%, fiscal deficits expand, and foreign holders reduce their Treasury exposure, pushing the 10-year yield above 5%. The spread widens to 2.40 pp as MBS volatility rises and private investors demand more compensation. The 30-year mortgage rate breaches 7% in 2027–2028, easing only marginally to 6.90% by 2031 as conditions stabilize.
The margin of error
Of course, these are long-range estimates based on historical norms and broad expectations. All of these numbers could be thrown out the window if any of the following happens:
- The 10-year Treasurys outperform or underperform the forecast. For example, yields could crash in a severe economic setback, such as a recession, or soar on mounting government deficits. We’ve seen just how unpredictable interest rates can be with wild cards such as geopolitical unrest.
- The spread between Treasurys and mortgage rates narrows — or dramatically widens.
- Monetary policy, as driven by the Federal Reserve, substantially changes.
While the Federal Reserve sets short-term overnight interest rates, most home buyers choose a 30-year fixed-rate mortgage. Mortgage investors typically expect the average home loan to be prepaid, refinanced, or sold within 7 to 10 years. As a result, lenders benchmark 30-year mortgage rates against the yield on 10-year U.S. Treasury notes, adding a profit and risk margin known as the “spread.”
The spread is the difference between the 10-year Treasury yield and the 30-year fixed mortgage rate. Historically (2010–2020), this gap averaged 1.5 to 2.0 percentage points. In recent years, increased market volatility, reduced bond purchases by the Federal Reserve, and elevated risk premiums pushed the spread above 2.5 percentage points. As the spread gradually narrows toward its historical baseline, mortgage rates can decline even if Treasury yields stay flat.
Based on economic projections and yield model consensus:
Base Case: Rates are projected to ease gradually from 6.20% in 2027 down to 5.90% by 2031.
Bull Case (Soft Landing): If inflation drops quickly to 2% and spread compression accelerates, rates could drop to 5.05% by 2031.
Bear Case (Persistent Inflation): If federal deficits expand and inflation remains sticky above 2.5%, mortgage rates could rise above 7.00% before settling near 6.90%.
Waiting for significantly lower interest rates carries risks. If mortgage rates drop to 5%, a wave of sidelined buyers entering the market could trigger increased competition and push home prices higher, offsetting the savings from a lower interest rate. Purchasing when you can comfortably afford the monthly payment allows you to build home equity now, with the option to refinance if interest rates drop in the future.
A general rule of thumb is to consider refinancing when you can reduce your mortgage rate by 0.75% to 1.00% or more, provided you plan to stay in the home long enough to recoup the closing costs.
For example, if refinancing costs $4,000 in fees and lowers your monthly payment by $160, your break-even point is 25 months ($4,000 ÷ $160). If you plan to stay in the property past those 25 months, refinancing makes financial sense.
Manoj Sharma is a Senior Writer on the banking team at Tax Assistant. He provides information on budgeting, bank accounts, the banking industry, and other related topics. Using original data and methodologies, he helps you identify the best financial institutions, accounts, and products tailored to your needs. Manoj holds a degree in Journalism and Political Science from Syracuse University. All articles are strictly reviewed and fact-checked by our panel of expert Chartered Accountants, including CA Devendra Saini, CA Nikhil Khunteta, and CA Ankit Goyal
