Interest Rate Trajectory and Refinance Dynamics
Happy new year. Mortgage rates are expected to remain elevated but show modest improvement throughout 2026. Thirty-year fixed rates are projected to average between 6.0% and 6.3%, with potential dips toward 5.9% by year-end, while 15-year fixed rates should hover around 5.5% to 5.8%. The Federal Reserve is anticipated to cut short-term rates gradually, possibly reaching 3.0% to 3.25%, but mortgage rates will continue to track long-term Treasury yields, which reflect inflation and growth expectations. This slight easing in rates could trigger a resurgence in refinancing activity, with refi share projected to rise from 26% in 2025 to 35–36% in 2026. If rates dip below 6.25%, expect a significant refinance boom and origination volumes increasing by 8–13% year-over-year.
Washington Policy and Regulatory Shifts
Policy developments in Washington will play a critical role in shaping the mortgage landscape this year. Recent leadership confirmations at Ginnie Mae and FHA signal stability in government-backed lending programs, which remain vital for first-time homebuyers. Meanwhile, Freddie Mac’s decision to end certain exchange offers for UMBS could reshape liquidity in the secondary market. Additionally, incremental housing reforms aimed at improving affordability and expanding credit access are likely to emerge, influencing underwriting standards and product mix. These changes may lead to greater emphasis on adjustable-rate mortgages and non-QM lending as lenders adapt to evolving regulatory priorities; particularly when combined with a steeper yield curve and increasing bank and insurance portfolio demand.
Structural Market Trends: Affordability, Inventory, and Non-QM Growth
Affordability challenges will persist despite easing inflation, with Core PCE projected at 2.3% to 2.6%. Housing costs and tariff-driven price pressures will keep budgets tight, even as inventory gains and slower price growth of 1–2% nationally offer some relief. Regional disparities will remain pronounced, creating opportunities for targeted strategies. Non-QM lending is expected to move from niche to mainstream as traditional qualification hurdles persist, with lenders prioritizing documentation quality and cash-flow-based underwriting. At the same time, a “low-hire, low-fire” labor market and unemployment edging up to 4.5–4.7% could temper demand, though these conditions support gradual Fed easing. Broader macro factors, including AI-driven productivity gains and geopolitical uncertainty, will continue to influence market dynamics.
WEEKLY INTEREST RATE SNAPSHOT (Images)
*National average rates are provided by Bankrate.com and Bloomberg Professional as of 1/5/2026 and are not advertised rates from Rate, Inc.
