What Impacts Mortgage Rates?
I get this question all the time — especially in a volatile market like we’re in right now:
“When will mortgage rates go down?”
And look, for anyone to answer that with 100% certainty, they’d probably need to be a billionaire institutional investor, the President of the United States and the Chair of the Federal Reserve… all rolled into one.
Okay — maybe that’s a little dramatic, but you get my point. It’s a complex question with a lot of moving parts.
That said, there are trends and key indicators we can watch (which I’ll break down below). But before we dive into the data, I want to give you a quick “Econ for Dummies – Dylan Style” refresher (no judgment — I got a C+ in college Econ myself).
Here’s the basic idea:
If mortgage rates drop, monthly payments become more affordable.
More affordability = more demand.
More demand = rising home prices and shrinking inventory.
So here’s my honest advice: Buy when it feels right for you. Trying to perfectly time the market is a game even the experts rarely win.
Focus on what you can control — your budget, your goals, and your timeline. The rest? That’s what I’m here to help you navigate.
What Impacts Mortgage Rates? Let’s Break It Down.
If you’ve been watching the housing market or you're thinking about buying or refinancing, you’ve probably noticed how often mortgage rates are mentioned — and how much they can change. One week they’re up, the next they’re down. So, what really impacts mortgage rates?
Let’s take the mystery out of it.
1. Inflation
Inflation is the biggest driver of mortgage rates. When inflation rises, the purchasing power of money goes down, and lenders demand higher interest rates to compensate. Why? Because they want to make sure the money they’re paid back in the future is worth as much as the money they lent out today.
Pro tip: If inflation starts to cool off, mortgage rates usually follow. If inflation spikes, rates tend to climb too.
2. The Federal Reserve
The Fed doesn’t directly set mortgage rates — but it does influence them. When the Fed raises or lowers its benchmark interest rate (the federal funds rate), it impacts short-term lending and borrowing. This can ripple into longer-term rates like mortgages.
For example: If the Fed raises rates to slow inflation, mortgage rates often trend upward. If they cut rates to stimulate the economy, mortgage rates may go down.
3. The Bond Market (Specifically, the 10-Year Treasury Yield)
Mortgage rates closely track the yield on the 10-year U.S. Treasury bond. When investors pour money into safer assets like Treasuries (often during economic uncertainty), the yield drops — and mortgage rates tend to drop, too. When confidence is high and investors pull out of bonds, yields go up — and so do rates.
4. The Health of the Economy
When the economy is strong, with low unemployment and rising wages, people tend to buy more homes. Increased demand can push rates higher. On the flip side, in a slowing economy, lenders may lower rates to attract borrowers.
5. Your Personal Financial Picture
While the above are market-wide influences, your individual mortgage rate depends on:
Your credit score
Your down payment
Loan amount and type (conforming, jumbo, FHA, etc.)
Debt-to-income ratio
Property type and occupancy
The stronger your overall profile, the lower your rate is likely to be.
Final Thoughts
Mortgage rates are like the weather — they’re always changing, and while you can’t control them, you can plan for them. Whether rates are up or down, there are always smart ways to approach home financing.
If you’re wondering where rates are heading or whether it’s a good time for you to buy or refinance, let’s chat. I’m always happy to take a look at your situation and help you navigate the current market.
