Why Mortgage Rates Are Falling in 2026 and What Homeowners Should Do in Q1

Why Interest Rates Are Falling Right Now – And Whether You Should Buy, Refi, or Get a HELOC in Q1 2026

Mortgage rates have finally moved in the right direction, and many buyers and homeowners are asking whether this is a short-term dip they should take advantage of. Below is a clear breakdown of why rates are falling, and whether it makes sense to buy, refinance, or access equity in the first quarter of 2026.

Where Rates Are Right Now

As of mid-January 2026, the average 30-year fixed mortgage rate is around 6.06%, the lowest level in more than three years.

“The 30-year fixed-rate mortgage averaged 6.06% as of January 15, 2026…” — Freddie Mac Primary Mortgage Market Survey

A year ago, that same average was about 7.04%, which means rates are roughly a full percentage point lower today.

Why Mortgage Rates Are Falling in the Short Term

There are three primary reasons behind the recent downward movement in mortgage rates:

1. Fed Policy and Treasury Yields

After aggressively raising rates in 2022 through 2024, the Federal Reserve began cutting rates in late 2025. Lower policy rates reduce Treasury yields, which directly influence mortgage pricing.

2. $200B Mortgage Bond Purchasing Plan

President Trump ordered Fannie Mae and Freddie Mac to purchase up to $200 billion in mortgage-backed securities to push mortgage rates lower and improve affordability. This action has contributed to rates falling to their current 3-year lows.

3. A Cooling, Not Crashing, Housing Market

Demand remains soft, pending sales are low, and homes are spending more days on market. Builders have responded with price cuts and incentives, which is consistent with a normalizing market and lower rates.

Why This Is a Temporary Window, Not a Return to 3% Rates

While rates have dropped, major forecasts do not expect a return to pandemic-era 2–3% mortgage rates. The Mortgage Bankers Association expects 30-year rates to stay around the 6% to 6.5% range in the coming years, indicating a “higher for longer” environment.

Q1 2026: Should Buyers Act Now?

Reasons to Consider Buying:

• Monthly payments are lower than last year due to rate drops
• Buyers have more negotiating power with sellers
• You can refinance later if rates drop further

Reasons to Wait:

• Affordability is still tight in some markets
• If payments only work at the extreme edge, waiting may be smarter
• Timing the absolute bottom is nearly impossible

Buyer Rule of Thumb: If the payment works for your budget and long-term plans, Q1 is a reasonable time to act. If your situation is unstable, focus on stability first.

Q1 2026: Who Should Consider Refinancing?

Refinancing makes sense in Q1 if:

• Your current mortgage rate is significantly higher than today’s average (around 7.25%+ as a starting point)
• You plan to stay in the home long enough to break even on closing costs
• You are consolidating high-interest debt responsibly

Refinancing does not make sense if:

• Your first mortgage rate is under 5%
• You plan to move within 1–2 years
• You would restart a 30-year term without paying extra principal

Q1 2026: HELOC or Cash-Out Refi?

Choose a HELOC if:

• Your existing first mortgage rate is 2–4%
• You only need short-term or flexible access to equity
• You want to avoid replacing your entire first mortgage

Choose a Cash-Out Refi if:

• Your current rate is already 6.5% or higher
• You want a single fixed payment instead of a variable HELOC
• You are consolidating multiple debts into one

A Simple Q1 Game Plan

1. Know your current rate and break-even timeline
2. Expect rates to hover around 6% for now
3. Decide based on payments and life plans, not headlines
4. Get pre-approved or have your equity strategy ready

If the numbers work and you have stability, Q1 offers a valuable window. If they don’t, no headline will change that.

Sources

• Freddie Mac Primary Mortgage Market Survey — 30-year fixed at 6.06% (Jan 2026)
• AP News — Mortgage rates hit lowest level in more than 3 years
• Reuters — Rates fall after FHFA executes $200B mortgage-backed securities plan
• Redfin — Median monthly payments down year-over-year
• NAHB — Builder sentiment and pricing data
• Mortgage Bankers Association — 30-year rate forecast in 6–6.5% range