Multiple factors
How mortgage rates are determined
Mortgage rates are anchored to the 10-year Treasury yield plus a spread (typically 1.5-2.5 percentage points) that reflects mortgage risk and prepayment uncertainty. Treasuries respond to Federal Reserve policy, inflation expectations, and global capital flows. The Fed's federal funds rate affects mortgages indirectly through expectations rather than directly — that's why mortgage rates can move opposite the Fed move on announcement days.
Level
Try calculatorKey takeaways
04 · ideas- The Fed funds rate influences but does not directly set 30-year mortgage rates
- 30-year mortgage rates closely track the 10-year Treasury yield
- Loan-level price adjustments vary by credit score, LTV, and property type
- Mortgage-backed securities markets are the direct pricing mechanism
Mortgage rates are determined by multiple interacting forces.
Federal Reserve: The Fed sets the federal funds rate. This directly influences short-term rates and adjustable-rate mortgages, but has an indirect relationship with 30-year fixed mortgage rates.
10-year Treasury yield: The most important benchmark for 30-year fixed rates. Mortgage rates typically track 10-year Treasuries with a spread that has historically ranged from 1.5% to 3%.
Mortgage-backed securities (MBS): Most mortgages are sold to investors as securities. The rate the lender offers reflects the rate at which they can sell the loan into the secondary market, plus a profit margin.