8 factors that cause mortgage rates to rise and fall
Why do mortgage rates vary from day to day? Though it might feel at times like mortgage rates are unpredictable, they’re actually the byproduct of several outside influences. Multiple factors, like inflation, the U.S. jobs report, a major election and more, can work together to either push rates up or down.
This is because mortgage interest rates are closely tied to the overall health of the economy.
Factors like inflation, employment, consumer spending and Federal Reserve policies all help determine borrowing costs. When the economy is strong, demand for credit increases, often driving mortgage rates higher. In periods of slowdown or uncertainty, rates may fall as the demand for loans decreases.
Why do mortgage rates vary from day to day? 8 factors
Do mortgage rates go down in a recession or after a presidential election? We can learn what to expect by looking at common trends:
| Factor | Impact on mortgage rates | Direction (up/down) |
|---|---|---|
| 10-year Treasury rate | Historically, the movement of the 10-year U.S. Treasury note has been considered the strongest indicator of where mortgage rates may be heading. The long-term mortgage rate has followed the 10-year Treasury rate for nearly 50 years. | Up - When Treasury rates rise Down - If yields fall |
| Election | A major election can create uncertainty in U.S. financial markets, with potential to temporarily raise/lower mortgage rates depending on investor confidence. | Volatile - Either direction possible |
| Federal Reserve benchmark rate | Fed rate changes affect short-term interest rates and indirectly influence mortgage rates, which are more closely tied to long-term rates like the 10-year Treasury yield. | Up - Usually seen with Fed rate hikes Down - Usually seen when the Fed cuts rates |
| Global economic events | Major global events (such as wars, financial crises and natural disasters) can cause uncertainty, leading to fluctuating mortgage rates as investors seek safer assets. | Volatile - Either direction possible |
| Housing market demand | When homebuyer demand cools, lenders often adapt by lowering rates to keep attracting borrowers. When demand is high, lenders may increase rates to make up for the added costs needed to sustain a higher sales volume. | Up - High demand Down - Low demand |
| Inflation | When inflation is high, borrowing costs—as well as mortgage rates—tend to rise. Conversely, lower levels of inflation may help to bring down mortgage interest rates. | Up - With high inflation Down - With low inflation |
| Recession | Mortgage interest rates typically drop in times of economic recession. If a recession occurs, the Fed may have to lower its rate to stimulate the economy, and mortgage interest rates could fall. | Down |
| U.S. jobs report | A strong jobs report can signify a healthy economy and may increase mortgage rates. An unfavorable report can suggest an economic downturn and may decrease rates. | Up - Good report Down - Weak report |
Looking for ways to lower your rate?
Ask your loan officer about a temporary buydown.
Why are mortgage rates so high right now?
To answer this question, let’s look at it from a historical perspective. Today’s mortgage rates are significantly lower than some of the highest rates seen over the last 30 years:*
While current mortgage rates are higher than the rock-bottom lows of the pandemic, they’re not considered historically high. In fact, the historical average of mortgage rates, recorded since 1971, is 7.72 percent.
There are also ways to lower your mortgage rate, depending on the loan program you qualify for.
Improving your credit score, increasing your down payment amount, reducing your debt-to-income ratio and shortening your loan term can all positively impact your rate. Your loan officer can also help you explore options like temporary buydowns, which reduce your monthly mortgage payments for the first few years, and seller concessions, which allow the seller to contribute towards your closing costs.
It doesn’t always pay to chase the lowest rate
Most homebuyers are—understandably—looking for a low rate. But the mortgage with the lowest rate may not provide the most upfront or long-term savings. Getting a mortgage with a 30-year fixed rate also doesn’t mean you’re stuck with that rate; you could refinance in the future.
While many may see the economy as “good” or “bad,” a strong economy can push interest rates higher, and a weaker economy may lower rates but limit funds to buy a house. So, it’s best to buy when the timing is right for you. Is now the right time? Reach out for guidance.
*Freddie Mac, 30-Year Fixed Rate Mortgage Average in the United States [MORTGAGE30US], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/MORTGAGE30US, December 2, 2024.
The above information is for educational purposes only. All information, loan programs and interest rates are subject to change without notice. All loans subject to underwriter approval. Terms and conditions apply. Always consult an accountant or tax advisor for full eligibility requirements on tax deduction.