Mortgage rates continue to rise as 2026 nears its end. What is the outlook for home loan rates in the next five years? An AI-generated forecast looks for mortgage rates to remain above 6% through 2031; however, bear and bull scenarios are wide-ranging. Mortgage interest rates are determined by several factors, all of which can give us clues about the future.
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 September update from the Deloitte Global Economics Research Center.
“After delivering three quarter-point interest rate cuts in the second half of last year, the Federal Reserve reversed course and raised interest rates at its September meeting. We now expect the Fed to hike once more before the end of this year. As consumer spending growth and inflation moderate in 2027, we expect the Fed will begin to cut rates again at the end of that year. We have significantly raised our expectations for the 10-year Treasury yield,” he wrote.
Here’s the Deloitte 10-year Treasury five-year forecast.
|
Year |
Yield |
|---|---|
|
2027 |
4.70% |
|
2028 |
4.30% |
|
2029 |
4.20% |
|
2030 |
4.20% |
|
2031 |
4.20% |
Source: Deloitte Touche Tohmatsu LTD
Meanwhile, the Congressional Budget Office (CBO) projects that the 10-year Treasury yield will reach 4.4% by 2031, and remain there through 2036.
Anthropic’s Claude artificial intelligence compiled the predictions into a consensus forecast, which we will utilize below.
Read more: Why mortgage rates increased after the Federal Reserve rate cut
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 October 15, the 30-year fixed mortgage rate was 7.40% and 10-year Treasury yield closed at 5.098%. The spread was 7.40- – 5.09 = 2.31 percentage points.
Claude AI noted the recent significant widening in the spread in its revised analysis. The base case for Claude’s spread assumptions now begins at 2.15 percentage points in 2027, gradually declining to 1.98 percentage points in 2031.
|
Period/Factor |
Spread |
|
Long-run average (1971-2020) |
~170 bps |
|
Stable era (2010-2019) |
150-180 bps |
|
Post-COVID peak (2022-2023) |
~270-300 bps |
|
2024 (Fed QT, buyback start) |
~230 bps |
|
2025 (Fannie/Freddie buybacks) |
~200 bps |
|
September 2026 anchor |
~197 bps |
|
October 15, 2026 (current) |
~215 bps |
|
Effect of Sep 2026 Fed hike |
Widened spread +18 bps |
|
Base case range 2027-2031 |
198-215 bps |
“The 10-yr Treasury surged from 4.74% to ~5.25% (+51 bps) and the 30-yr mortgage from 6.71% to 7.40% (+69 bps) in six weeks. The Fed hiked in September 2026. All scenarios [have been] revised materially upward,” Claude wrote.
Using these spread estimates, we can now complete our five-year mortgage rate forecast.
The 5-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:
5-Year Mortgage Rate Forecast
For its base case, Claude slightly modified the Treasury forecast from above, adding its forecasted 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 |
4.80% |
2.15 |
6.95% |
|
2028 |
4.50% |
2.10 |
6.60% |
|
2029 |
4.30% |
2.05 |
6.35% |
|
2030 |
4.20% |
2.00 |
6.20% |
|
2031 |
4.20% |
1.98 |
6.18% |
Read more: See today’s best mortgage rates.
Considering bull and bear cases
While this forecast is for a base case with gradual normalization to the spread, the easing of inflation, and the Fed cutting rates slowly beginning in late 2027, Claude AI also prepared a “bull” estimate and a “bear” estimate:
-
The bull case: “The Fed pivots early 2027, inflation returns to 2%, AI debt cycle moderates.” In that case, Claude predicts 30-year home loan rates to move from 6.55% in 2027 to 5.38% in 2031.
-
The bear case: “Yields breach 6%, fiscal spiral, AI debt binge keeps term premium elevated.” In this scenario, Claude sees the 30-year mortgage rate move from 7.7% in 2027, up to 8.05% in 2028, and then gradually falling to 7.25% by 2031
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.
Mortgage rate predictions for the next 5 years: FAQs
Will mortgage interest rates ever be 3% again?
There is no forecast that predicts a 3% mortgage rate in the next five years. However, who saw such low home loan rates on the horizon in 2007 when rates were about where they are now? Things like the Great Recession and a global pandemic are rarely on the radar, and such drastic events are what it takes to move mortgage rates into the cellar.
What will mortgage rates be in 2027?
The analysis above predicts 2027 mortgage rates to be near 6.95%.
Will mortgage rates drop in the next 5 years?
Based on the estimates above, mortgage rates are expected to moderate in the next five years, but remain above 6%. However, a recession or other unknown disruption to the economy (such as war, a financial collapse or another pandemic) could steepen the drop in rates.
Is it better to fix a rate for 2 or 5 years?
If you are considering an adjustable-rate mortgage with an initial fixed-rate period, you will first want to consider how long you will actually remain in the house you are financing. Then the long-term mortgage rate forecasting begins. The best approach is probably to select the initial term that best suits your current budget.
