5 big — and very bold — predictions for the mortgage industry in 2025 

Thinking big about residential real estate success requires a big-picture perspective. Industry Decoded features industry experts who can enrich your understanding of issues affecting the industry as a whole.

The views expressed in this column are solely those of the author.

The mortgage industry is on the brink of profound transformation, driven by technological breakthroughs, societal shifts and economic pressures. 

By looking at the trends shaping the market, we can make bold, evidence-backed predictions about what's to come. Are these events likely to happen in 2025 or beyond? Maybe not — but they could, which makes them interesting ideas to ponder. 

Here are five audacious predictions for the mortgage industry in 2025.

1. AI-driven mortgage approval processes dominate

Artificial intelligence is rapidly reshaping financial services, and mortgage lending is no exception. By the end of 2025, AI-driven mortgage approval systems are expected to become standard, enabling near-instant loan decisions and transforming the loan process.

A 2023 survey by Fannie Mae found that 70% of lenders were already investing in AI tools, with early adopters reporting a 30-40% reduction in processing times. These systems analyze vast amounts of borrower data, and companies like Blend and Better Mortgage are already using AI to process applications in hours rather than days.

However, concerns about bias persist. A study by the Brookings Institution revealed that AI systems could unintentionally amplify racial or socioeconomic biases if not carefully designed. Regulators such as the CFPB are likely to increase scrutiny of AI systems to ensure fair lending practices.

2. Rates skyrocket as global markets shift

A bold and controversial prediction for 2025: Mortgage interest rates will rise to their highest levels in decades, potentially exceeding 10% in some markets. This sharp increase will be driven by a combination of global economic pressures, central bank policies and inflationary trends.

The Federal Reserve's efforts to combat inflation in recent years have already pushed rates upward, and analysts predict further tightening of monetary policy as central banks globally respond to stubborn inflation and volatile markets. Adding to that volatility is geopolitical instability, which could disrupt supply chains and energy markets, driving inflation — and rates — higher.

Now, most predictions call for interest rates to settle somewhere between 6.3% and 6.8% this coming year, but it's easy to see how a surge in rates is possible, given the amount of financial and political uncertainty. 

Even some consumers are bracing for rates near 10%. In a Feb. 2024 survey by the Federal Reserve Bank of New York, renters and homeowners, on average, expected rates to reach 8.7% within a year and 9.7% within three years. Borrowers will need to adapt by considering adjustable-rate mortgages (ARMs) or shared-equity financing to mitigate the impact of rising costs.

3. Space-based mortgages for off-planet homes

Here's a truly outlandish prediction: By 2025, the groundwork will be laid for space-based mortgages as private companies move closer to establishing permanent human settlements on the Moon or Mars. While this may sound like science fiction, companies like SpaceX, Blue Origin and NASA are already developing plans for off-planet living.

The idea of owning property in space is no longer theoretical. In 2024, a partnership between NASA and private firms resulted in the "Lunar Gateway," a steppingstone to sustainable lunar living, while organizations like ABOVE Space are working to create orbital habitats with luxury space condos.

Financial institutions are beginning to explore the legal and logistical implications of space mortgages. A 2023 white paper by Deutsche Bank speculated on how international treaties, such as the Outer Space Treaty, could impact ownership rights. While it's unlikely that a formal market for extraterrestrial real estate will emerge immediately, the first contracts for space-based leasing or financing could be signed as early as 2025.

Though owning property off-planet might be reserved for the ultra-rich initially, the implications are profound. As humanity's footprint expands beyond Earth, so too will the reach of the mortgage industry, creating new frontiers for innovation and economic growth.

4. Homeownership for gig workers expands

The gig economy, encompassing over 36% of the U.S. workforce according to Statista, presents unique challenges for traditional mortgage lenders. By 2025, we predict that lenders will increasingly adapt to non-traditional borrowers by offering innovative products.

Current underwriting systems heavily favor W-2 employees, but new credit models from companies like Upstart and Zest AI are incorporating alternative data to evaluate creditworthiness. According to Experian, using alternative data could expand credit access for over 50 million "credit-invisible" consumers in the U.S.

Policy changes, such as the Biden administration's proposed updates to Fannie Mae and Freddie Mac guidelines, may also bolster this trend. Lenders who embrace these changes could tap into a growing, underserved market segment.

5. Big Tech gets into the mortgage biz

Tech giants like Amazon, Google and Apple are already exploring financial services. Their potential entry into the mortgage space by 2025 could be a game-changer, disrupting traditional lending models and streamlining customer experiences by integrating mortgage applications into existing platforms.

For example, Amazon recently partnered with fintech firms to explore home loan services in India, offering competitive rates and a fully digital application process. Similarly, Google has launched financial tools through Google Pay, positioning itself to enter broader lending markets.

A 2024 McKinsey report estimated that Big Tech's entry into financial services could lower transaction costs by 20%, making homeownership more affordable for consumers. 

However, these advancements come with concerns. Critics argue that Big Tech's dominance could stifle competition and raise significant privacy issues. As the industry navigates this shift, regulators will play a critical role in maintaining a balanced and fair mortgage ecosystem.

Change is coming

While we may only see hints of a transformation in 2025, the mortgage industry is shifting. From AI-enabled efficiency to new opportunities for gig economy workers, the future promises greater inclusivity and innovation. The potential entry of Big Tech adds another layer of complexity, offering unparalleled convenience but raising critical questions about competition and privacy.

For lenders, borrowers and policymakers alike, the challenge is clear: Embrace change while safeguarding fairness and security. By staying ahead of these trends, stakeholders can position themselves to thrive in a dynamic and evolving market.

Coby Hakalir has been a leader in the mortgage industry for almost three decades. He currently leads the mortgage banking and mortgage tech division for T3 Sixty, one of real estate's leading management consultancies, and resides in Northern California. (Note: T3 Sixty founder Stefan Swanepoel also founded Real Estate News.)