Mortgage rates and buying power: What's ahead for 2026?

Unlike adjustable-rate mortgages (ARMs) and home equity lines of credit (HELOCs) — which track the Fed’s prime rate — 15-year and 30-year fixed-rate mortgages are influenced primarily by the bond market, specifically by the 10-year Treasury note. While Fed actions matter, they don’t directly control mortgage rates.

For first-time and repeat homebuyers and refinancers, however, the ripple effect from the Fed’s actions could have real effects on their buying power. The question is, will 2026 bring optimism or frustration for them? Will they just get fed up and delay a home buying decision?

Small changes in mortgage rates can significantly affect buying power. When rates rise, monthly payments increase, reducing affordability, as we’ve illustrated in our chart above.

For example, assuming a $2,500 monthly mortgage payment and a 20% down payment:

At 4%, a buyer could afford:

• $422,475 on a 15-year fixed
• $654,566 on a 30-year fixed

(Rates this low haven’t been seen since January 2021, when 30-year fixed hit 2.65%.)

At 6%, affordability drops to:

• $370,323 on a 15-year fixed
• $521,223 on a 30-year fixed

At 6.5%, buying power falls further:

• $358,738 on a 15-year fixed
• $494,408 on a 30-year fixed

Prognosticators for 2026, led by Fannie Mae, mention a possibility of ringing out the old year with mortgage rates of 5.9% by December 2026. Fannie Mae’s September 2025 Economic and Housing Outlook, published by the Economic and Strategic Research (ESR) Group, also predicted new and existing home sales to reach 5.16 million in 2026. The ESR report predicted single-family mortgage originations activity would total $2.32 trillion in 2026, along with a rise of the refinance share to 35%, driven by lower rates.^Footnote1

Considering a $400,000 sales price and a 20% down payment, we compared rates of the ESR’s predicted 6% and 6.50% to see their impacts on homebuyers’ monthly mortgage payments.

At 6%, monthly payments are:

• $2,701 on a 15-year
• $1,919 on a 30-year

At 6.5%, payments rise to:

• $2,788 on a 15-year
• $2,023 on a 30-year

That’s an extra $1,044 per year to pay on a 15-year mortgage and $1,248 on a 30-year — small percentage changes but a big impact on homebuyer budgets.

With a possibility of changes to the Federal Reserve Board of Governors in 2026 — maybe even a replacement of Chairman Jerome Powell — it's difficult to make early predictions about where rates will land. Considering that 2025 saw three cuts and the last as late as December, 2026 could be interesting.

As of this article’s writing, the federal funds target range for 2026 was from 3.75% to 4%. Starting in 2025, it was 4.25% to 4.5% — down from the highest in the last 10 years, when it was 5.25% to 5.5% from August of 2023 through September of 2024, reported by the Board of Governors of the Federal Reserve System.^Footnote2

At the beginning of November 2025, 30-year rates were at 6.17% — down from the peak of 7.79% seen in October 2023.^Footnote3 Rates for 15-year mortgages were much lower at 5.41% — down from their October 2023 peak of 7.03%.^Footnote4

As for 2026 rates, most forecasters predict declines — but not drastic declines — in the mortgage rate. Bank of America has a much more positive outlook compared to the rest of the market. The Mortgage-Backed Securities Team (MBS) said in September 2025 that it could “see a path to a 5% mortgage rate” — if the Fed acts on quantitative easing in mortgage-backed securities and hauls the 10-year Treasury bond yields down to between 3.00% and 3.25%. The MBS said a more realistic expectation is for 2026 to close with a mortgage rate at 6.25%.^Footnote5

Educating clients about the factors behind mortgage rates can help reduce uncertainty and build trust. Encourage proactive planning for them — rate locks, budgeting for higher payments, and exploring refinancing opportunities if rates decline.

Our goal remains clear — to help clients navigate market volatility and make informed decisions about homeownership. Together, we can turn uncertainty into opportunity in 2026.