Home buyers have been especially sensitive to mortgage rate swings in recent years: When rates fall, sales rise. And, when rates climb, buyers hesitate. Matt Vernon, the head of consumer lending at Bank of America, shares his outlook for 2026 and how financing trends could shape the housing market in the year ahead. Consumers are starting to investigate adjustable-rate mortgages and accept 6% as the new norm, he says.
What are the big forces you expect to shape the mortgage market in 2026?
Matt Vernon: I really think rates are going to stabilize, especially post the movements that the Fed has made this year and the predicted movements we’ll see next year. By stabilize, we mean in this 6% to 7% range that we’ve been in. I would not expect a dramatic drop from where we sit at the end of 2025. But as we head into 2026, I would expect a modest decline in rates—ultimately sitting in that low six-ish percent range.
I think housing supply is also going to be a factor, which shapes affordability. Underbuilding, zoning restrictions, and homeowners sitting on 3.5% mortgages have created a bottleneck in some cases, but I would expect that to ease across the country. In some places like the South and the Midwest, we’re already beginning to see [movement]. Buyers are also continuing to shift their preparation, flexibility and planning for the rate environment that exists—rather than hoping for 2020 rates.
So buyers will start to accept that 6% is the new norm for rates?
Vernon: We’re seeing that with our clients. They understand ultimately that 6-7% is still, historically, a very good mortgage rate. Affordability is challenging, but preparation overcomes that challenge. They’re not as deterred as they were a year or two ago. Many see rates potentially moving down, giving them confidence to prepare for a purchase and the potential to refinance down the road should rates decline.
Do you see certain mortgage products gaining traction next year?
Vernon: Yes. We’re beginning to see borrowers choose alternatives to the 30-year traditional fixed mortgage that dominated the last seven to 10 years in the very low-rate environment. It’s not a new idea—if you go back two decades, clients were also looking at different programs because affordability was more of a challenge then, like it is today.
Consumers are starting to investigate adjustable-rate mortgages; up to 10% of our current volume is in adjustable-rate mortgages. That’s the highest level since 2023. Buyers will continue to consider these alongside traditional fixed-rate mortgages because they offer lower payments early on and the potential to refinance later.
A 15-year mortgage is also attractive for the right buyer. Borrowers with substantial cash flow and savings are looking for lower rates, and the lowest rate on a fixed mortgage is usually a 15-year versus a 30-year. That does come with a higher payment, so cash flow is important.
We keep hearing about the affordability struggles of first-time home buyers. Which assistance programs or alternative loan products could help open up the market for them in 2026?
Vernon: There are a number of programs that, frankly, many clients and prospective homeowners don’t know about. That’s why it’s incredibly important to get educated on the mortgage process. Also, do your research online for [how to connect with] local government or municipalities to apply for grants and down payment assistance.
And then talk to a lending professional, because large banks, small banks, regional banks all have programs that can help a client get into a home—especially that first-time home buyer.
As an example, here at Bank of America, we have a down payment grant program that will pay 3% of the purchase price, up to $10,000. We have a homeownership grant program where we will give $7,500 toward closing costs to permanently buy down the interest rate or cover one-time costs. And then we have 3% down payment mortgages that you can utilize. So just here at Bank of America—[we offer] up to $17,500—plus what you can find at the local level. That can make the difference between a [client] buying or having to wait.
And what about 50-year mortgages? Is that being considered by the industry?
Vernon: It’s not necessarily a new idea. A 40-year mortgage has been a product the industry has looked at over the last two decades from time to time. The appeal of a 50-year would be lower monthly payments, which could help with the affordability challenge.
But there are significant, potential downsides that need to be considered. Total interest costs would be much, much higher. Equity would build very slowly, and borrowers would remain in debt for decades. Utra-long mortgages are an idea that’s being explored, but it’s not mainstream. It would require a regulatory change, and it could come with significant trade-offs that buyers would need to carefully consider.
Do you anticipate a surge in refinances in 2026?
Vernon: As rates declined in late 2025, we saw a pickup in refinances, mostly from borrowers with higher-rate loans from the past two-and-a-half years. That will continue to some extent, but most lender portfolios have rates that are at 5% or less—so a substantial move with rates would be needed for a big refinance boom.
With the rise of freelance and gig work, are lenders becoming more flexible when evaluating self-employed mortgage applicants?
Vernon: We do a lot of business with self-employed borrowers. They often have variable income, so we may ask for larger down payments or more documentation to assess income stability. Access is improving, and creativity in evaluating these borrowers will continue. Working with a knowledgeable lender is key.
How will technology influence the mortgage process?
Vernon: AI and technology are bringing efficiency and effectiveness to the mortgage process that ultimately will simplify the steps for borrowers. It’s being used more behind the scenes in helping us to find documents and information... without having to ask a borrower to provide what would be a traditional paper statement.
We’ll ultimately close a loan faster, more efficiently and potentially at less cost, which also could be a benefit to prospective home buyers. I think the next three to five years are going to be incredibly important for us to see [technology] come to life in the mortgage process, which we already know can be pretty challenging.
For someone planning to buy in 2026, what advice do you have for how they can prepare?
Vernon: Preparation is key in any mortgage market, but especially the one that we’re in today. Prospective home buyers should start preparing early. Education is important. It’s also incredibly important to prioritize your credit health and reduce debt. A strong credit score and a low debt-to-income ratio improves not only your ability to qualify for a mortgage, but also can provide benefits from a rate perspective.
And then—this is essential—build savings and prepare your finances. Set aside money for a down payment, closing costs and unexpected expenses. Think not only about the monthly mortgage payment but also insurance and having an emergency fund for things like roof repairs or a failed water heater.
And last but not least, work with a lending professional to get pre-qualified or pre-approved. It’s comparable to having a great real estate professional who helps you in the home-buying process.
A lending professional can help give good advice so that when the home you love becomes available, you’re ready to act—because there will be other buyers ready as well.
