What Is Happening with Mortgage Interest Rates?

A common question for current and future homebuyers is, "If the Fed has been cutting short-term interest rates since September, why aren't home mortgage interest rates falling more quickly?"

To help answer this question, here is an overview of how different interest rates work and the various factors that impact the interest rates we pay on mortgages.

Mortgage rates are a key element of effective wealth management. That's because in wealth management, both sides of an investor's balance sheet – assets and liabilities – are important. For many investors, their home is a major asset. And if there's a mortgage on that home, it's also likely their largest liability. For future homeowners, saving for a home purchase is a common financial goal. When it comes time to buy, mortgage interest rates can meaningfully affect buying decisions.

It's a common misconception that there is one, single interest rate.

When the Federal Reserve (or, the Fed) "cuts rates," it's cutting the Federal Funds Rate, which is the shortest-term national U.S. interest rate. The Federal Funds Rate is the interest rate that banks charge to borrow money from each other (even though banks maintain reserves, when they need more, they borrow from other banks).

The Fed does not directly cut mortgage rates, 10-year Treasury rates, or the rates on corporate debt. It's other factors that drive mortgage rates and other long-term interest rates, including inflation, economic growth (like GDP and the employment rate), and the bond market.

To better understand mortgage rates, let's look at the 10-year U.S. Treasury yield.

Thirty-year mortgage rates tend to follow the 10-year Treasury yield more closely than short-term rates like the Federal Funds Rate.

In the chart above, the light blue area is the yield on 10-year U.S. Treasuries from April 1971 through April 2025. The darker blue line is the average U.S. 30-year fixed mortgage rate during that same time. They tend to move together. And the dark gray line is the Federal Funds Rate. 

Since the first short-term Federal Funds Rate cut in this current cycle (in September 2024), the rates on 10-Year Treasuries and 30-year mortgages rose. This was likely confusing to many prospective homebuyers or refinancers.

There is a correlation between the short-term Fed Funds rate movement and long-term mortgage rates. They may move in opposite directions for short periods of time, but historically, they generally move together, as shown above.

Adjustable-rate mortgage (ARM) rates, on the other hand, generally track to a specified benchmark interest rate that determines how the interest rate adjusts over time. The most common is the Secured Overnight Financing Rate (SORF), with a pre-specified spread.

As a result of economic uncertainty, rising Treasury bonds, and nagging high inflation, both 30-year and 15-year fixed mortgage rates have remained stubbornly high.

Since bottoming out below 3.0% in early 2021, rates on 30-year fixed rate mortgages have risen steadily since mid-2022 to the 6.0% to 7.0% range.

Mortgage rates have fallen modestly since the beginning of 2025, but not by much. Since peaking at over 7% in January 2025, the average national 30-year mortgage rate has dropped to 6.64% (as of April 4, 2025).

As of March 2025, Fannie Mae forecasts that the average national 30-year fixed rate mortgage may fall to 6.30% in the fourth quarter of 2025 but will remain above 6.00% through the end of 2026 (their forecast horizon). The average national 30-year fixed rate from 1971 to 2025 in the U.S. has been 7.73%, measured by Freddie Mac.

It’s not likely that 30-year fixed mortgage rates will fall to anywhere near their record lows in 2020 of below 3.0% soon, if ever. A drop close to 6.0% would be a welcome dip for Americans looking to purchase a home or refinance an existing fixed-rate mortgage or adjustable-rate mortgage (ARM).

We'll wait and see if rates drop meaningfully from here, but keep in mind that the driving factors for mortgage rates are different, and more complex, than the direction of Fed cuts. That's why we'll be watching rates on the 10-year Treasury, rather than focusing on the Fed cuts alone.

A home is either a current asset – or a goal – for many Americans.

Mortgage rates affect home affordability. When mortgage rates were low (between 2.0% and 3.0%) for much of 2020 through early 2022, we saw high levels of home purchases and mortgage refinances. When mortgage rates are higher, affordability is lower.

The cost of housing impacts the housing market and home sales prices, along with other factors.

As shown in the chart below, U.S. home sales prices dropped after the sharp rise driven, in no small part, by the low mortgage rates of 2020 to 2022. Since then, prices have dropped but are "holding on."

Several factors have driven up home prices, including low (or zero) short-term interest rates, and low rates on longer-term debt and lending, including 10-year U.S. Treasuries and 30-year fixed rate mortgages. These were driven by the Fed’s near-zero interest rate policy following the 2008 recession until modest hikes started in December 2015.

Home and shelter costs, as measured by the U.S. Bureau of Labor Statistics, remain high. Shelter costs are one of the largest inputs to the Bureau of Labor Statistics Consumer Price Index (CPI), a key inflation indicator. The shelter input in the CPI Index measures rent of a primary residence or the owner’s simulated equivalent rent. It is not a direct measure of homeowner mortgage costs.

Existing homeowners may have significant equity in their homes. Would it make sense to tap the increased equity to help with other rising expenses or cash flow? Home equity lines of credit generally have floating rates, and the average rate in the U.S. is currently 8.0% or higher. These rates are more attractive than borrowing to fund spending using credit cards.

But we suggest that homeowners tap home equity wisely for home improvements or other projects, if needed, not to fund daily expenses or consumer spending, if possible. If 30-year fixed- rate mortgage rates fall further, refinancing home equity borrowing into a long-term mortgage may make sense. We suggest that all borrowers have a plan to build and manage wealth over time, taking into account both assets and liabilities.

For borrowers with ARMs coming due, refinancing into a 30-year fixed rate mortgage, after the recent dip below 7.0%, may make sense. As noted above, the average 30-year fixed-rate mortgage rate since 1971 has been above 7.0%, and few analysts forecast that 30-year mortgage rates will fall much below 6.0% in the next few years. It seems the record-low fixed rates between 3.0% and 4.5% were an anomaly of the modern era, not the norm.

Mortgage rates are top of mind for many Americans, given the rising cost of home ownership, drop in turnover of existing homes, and lack of opportunities for refinancing for those who have purchased homes over the past few years. Understanding how mortgage interest rates are influenced and impacted by other interest rates and economic factors can help current and future homeowners make informed buying or refinancing decisions.