Interest rates on mortgages drop to a four-week low
Mortgage rates in the United States are influenced by a variety of factors, primarily the yield of 10-year Treasury bonds and investor appetite, which affects those yields through demand for bonds and risk perceptions.
Most mortgages are refinanced or paid off within about ten years, making the 10-year Treasury yield a common benchmark for setting mortgage rates. The lender's margin, typically ranging from 2% to 3%, is added to this yield to determine the final mortgage rate.
When investor appetite for Treasury bonds is high, often during economic uncertainty or market volatility, investors buy more Treasuries, driving up their price and lowering their yield. This results in lower mortgage rates. Conversely, when investors expect inflation or economic growth, they may sell Treasuries, pushing yields up and causing mortgage rates to rise.
During periods of economic uncertainty, lenders increase the margins they add to the Treasury yield to hedge against greater risk, which can further push mortgage rates higher, even if Treasury yields remain stable or fall. For example, during downturns, spreads between mortgage rates and Treasury yields widen as lenders need to cover overhead, risk, and profit.
While the Federal Reserve influences short-term rates, mortgage rates do not directly follow the Fed's benchmark interest rate but instead track the 10-year Treasury yield, which reflects longer-term inflation and growth expectations. Market anticipation of Fed policy changes can move Treasury yields and mortgage rates ahead of official Fed actions.
Here's a summary of the factors affecting 10-year Treasury yields and mortgage rates:
- Increased investor appetite for Treasuries (risk-off) leads to higher bond prices, lower yields, and lower mortgage rates.
- Expectations of inflation/economic growth (risk-on) result in lower bond prices, higher yields, and higher mortgage rates.
- Economic uncertainty/risk causes lenders to raise margins, pushing mortgage rates higher even if Treasury yields remain stable or fall.
- The Federal Reserve's monetary policy influences have an indirect impact on mortgage rates, affecting short-term rates, but mortgage rates follow the 10-year yield and market expectations.
As of Wednesday afternoon, 10-year Treasury yields were just below 4.4 percent, and the current average for a 30-year fixed mortgage is 6.75%. The Bankrate.com survey, which has been consistently conducted for more than 30 years, obtained rate information from the 10 largest banks and thrifts in 10 large U.S. markets. The survey found that the average 30-year fixed mortgage had an average total of 0.32 discount and origination points.
With a 20 percent down payment, a 6.75 percent mortgage rate, and typical family income, the monthly payment amounts to $2,259. This monthly payment represents 26 percent of the typical family's monthly income, based on the national median family income for 2025 of $104,200.
It is not specified whether mortgage rates will go down this upcoming week. However, understanding the factors influencing mortgage rates can help homebuyers and homeowners make informed decisions about their home financing options.
In personal-finance, understanding the factors affecting 10-year Treasury yields, such as investor appetite, expectations of inflation, economic uncertainty, and the Federal Reserve's monetary policy, can help in predicting how mortgage rates might change in the future. Investing in bond markets, specifically Treasuries, can influence mortgage rates, as high investor demand lowers yields and personal-finance costs. For instance, if investor appetite for Treasuries increases during economic uncertainty or market volatility, 10-year Treasury yields may drop and consequently, mortgage rates could decrease.
