Key Points
- Mortgage rates start in the bond market: the 30-year fixed rate is benchmarked to the 10-year Treasury yield, plus a spread that covers investor risk and lender costs.
- The Federal Reserve does not set mortgage rates directly. Its policy works through expectations for future short-term rates and through its holdings of mortgage-backed securities.
- Your own offer depends on your credit score, down payment, loan amount, loan term, loan type, rate type, location and whether you pay points.
- The APR includes points and fees, so it is usually higher than the interest rate and is a better tool for comparing total cost.
- A rate lock holds your quoted rate until closing for a set period, as long as your application does not change.
Mortgage rates are determined in two layers. The first is the market layer: the yield on the 10-year U.S. Treasury note, plus a spread that pays investors for the extra risks of mortgage bonds and covers the cost of making and servicing the loan. The second is the personal layer: your credit score, down payment, loan type and other choices move your rate up or down from that market baseline.
This explainer draws on the Consumer Financial Protection Bureau (CFPB), Freddie Mac, Fannie Mae and Federal Reserve research. It is general education, not financial advice.
What is a mortgage interest rate?
The CFPB defines the interest rate as the cost you will pay each year to borrow the money, expressed as a percentage rate. It does not include fees or other charges. On a fixed-rate loan, the rate is set when you take out the mortgage and does not change. On an adjustable-rate mortgage, it can go up or down over time.
Why do mortgage rates follow the 10-year Treasury yield?
According to Fannie Mae’s economic research team, the 30-year mortgage rate is benchmarked to the rate on the 10-year Treasury note, and as that rate moves, mortgage rates follow suit. Fannie Mae says the 10-year note has a duration close to that of the average mortgage, so its moves have a larger and more direct effect on mortgage rates than the Fed’s overnight rate.
The 10-year yield itself reflects what investors expect short-term interest rates to average over the next decade, plus a term premium for the risk of tying up money for that long. Those expectations are shaped by views on monetary policy, fiscal policy and government borrowing, economic growth and inflation. Our explainer on what the 10-year Treasury yield is and what moves it covers that side in detail.
What is the mortgage spread?
Mortgage rates sit above the 10-year Treasury yield. Fannie Mae breaks that gap, known as the mortgage spread, into two parts.
The secondary spread: investor risk
Most home loans are pooled into mortgage-backed securities (MBS) and sold to investors. The secondary spread is the difference between the yield on those MBS and the 10-year Treasury yield. It exists because mortgage bonds carry two risks that Treasuries do not. One is prepayment risk, because borrowers can refinance, move or pay off the loan early, often when rates fall. The other is credit risk, because a borrower or the company guaranteeing the bond could default.
Fannie Mae reports that this spread averaged 0.71 percentage point from 2012 to 2019 and 1.4 percentage points from January 2022 through November 2024. A wider secondary spread means higher mortgage rates even when Treasury yields are unchanged.
The primary-secondary spread: lender costs
The second layer is the gap between the rate offered to borrowers and the MBS yield. Fannie Mae says it reflects the costs of originating a mortgage, including servicing fees, guaranty fees charged by Fannie Mae and Freddie Mac, and other lender costs and profits. It averaged 0.5 percentage point from 1995 to 2005 and rose to about 1.01 percentage points after the 2008 financial crisis.
Does the Federal Reserve set mortgage rates?
No. The Fed sets a target for the federal funds rate, an overnight rate banks use to lend to one another. That rate strongly influences other short-term borrowing, such as credit cards and many adjustable loans, as our guide to how the federal funds rate affects you explains. A 30-year mortgage is a long-term loan priced in the bond market, so the link is indirect.
Fannie Mae’s researchers gave a clear example. After the Fed cut rates by 0.5 percentage point in September 2024, many observers expected mortgage rates to drop. Instead, the average 30-year mortgage rate rose from 6.09 percent on Sept. 19, 2024, to as high as 6.84 percent on Nov. 21, 2024, because economic data, inflation and the election outcome pushed the 10-year yield higher.
The Fed’s balance sheet matters too
The Fed can also move the secondary spread. When it buys large amounts of MBS, a policy known as quantitative easing, it acts as a buyer that is not sensitive to price and pushes that spread down. A Federal Reserve staff study found that the Fed’s accumulation of MBS and Treasury securities lowered MBS yields and mortgage rates by more than changes in market expectations alone would suggest. When the Fed lets its MBS holdings shrink, private investors must absorb more of the market, and Fannie Mae says they require a higher rate to do so.
What personal factors affect the rate you are offered?
The CFPB says your credit score and credit report determine whether you can get a mortgage and the rate you will pay. It also lists down payment, loan term and loan type as levers that change the rates you are offered.
| Factor | General effect on your rate (CFPB) |
|---|---|
| Credit score | Higher scores generally qualify for lower rates and more lender choices |
| Down payment | A larger down payment typically lowers the rate and the loan amount |
| Loan term | Shorter terms generally carry lower rates but higher monthly payments |
| Loan type | VA, USDA or FHA loans can offer lower rates if you qualify |
| Points | Paying points lowers the rate; taking lender credits raises it |
Credit score
Higher scores reflect a better credit history and make you eligible for lower rates, the CFPB says. Most mortgage lenders use FICO scores, pull scores from all three major credit reporting companies and use the middle one to price the loan. The agency recommends checking your reports for errors well before you apply. Shopping around does not have to hurt you: the CFPB notes that multiple credit checks from mortgage lenders within a 45-day window count as a single inquiry.
Down payment and loan amount
A bigger down payment means you have more equity at stake and the lender has less risk, so the CFPB says it typically lowers your rate and the amount you borrow.
Loan term and loan type
A 15-year loan generally comes with a lower rate than a 30-year loan because there is less risk to the lender, though the monthly payment is higher. The CFPB says VA loans are generally for veterans, servicemembers and surviving spouses, and FHA loans can be less expensive than conventional loans for borrowers with lower credit scores and smaller down payments.
Points and lender credits
Discount points let you pay more at closing for a lower rate. One point equals 1 percent of the loan amount, the CFPB explains, and how much each point lowers your rate depends on the lender, the kind of loan and the overall market. Lender credits work in reverse: the lender covers some closing costs in exchange for a higher rate.
Fixed-rate vs. adjustable-rate mortgages
With a fixed-rate mortgage, the rate is locked in for the life of the loan. Many adjustable-rate mortgages start lower, the CFPB says, and the initial rate may hold for months or a few years. After that, the rate resets on a regular schedule based on an index of market rates plus a margin the lender adds, subject to any caps. The agency warns borrowers not to assume they can sell or refinance before the rate changes.
APR vs. interest rate: what is the difference?
The annual percentage rate (APR) is a broader measure of borrowing cost. According to the CFPB, it reflects the interest rate plus points, mortgage broker fees and other charges you pay to get the loan, which is why it is usually higher than the interest rate. On a Loan Estimate, the interest rate appears on page 1 and the APR on page 3. The CFPB cautions that for adjustable-rate loans, the APR does not reflect the maximum rate the loan could reach, so APRs on fixed and adjustable loans are not a like-for-like comparison.
How does a rate lock work?
Because mortgage rates can change daily, sometimes hourly, lenders offer rate locks. The CFPB says a lock means your rate will not change between the offer and closing, as long as you close within the set time frame and nothing in your application changes. Locks are typically available for 30, 45 or 60 days, and sometimes longer. A locked rate can still change if your loan amount, credit score or verified income changes, or if the appraisal comes in differently than expected. Extending a lock can be costly.
Where can you check average mortgage rates?
The most widely cited benchmark is the Freddie Mac Primary Mortgage Market Survey, published every Thursday at noon Eastern time. It averages rates from thousands of loan applications submitted to Freddie Mac in the prior Thursday through Wednesday, for conventional, conforming home purchase loans. As of Oct. 15, 2026, Freddie Mac reported that the 30-year fixed-rate mortgage averaged 7.40 percent, unchanged from the prior week, and the 15-year fixed averaged 6.71 percent.
Your own quote can be higher or lower than the survey average. The CFPB’s Explore Interest Rates page shows how changing your credit score, down payment, term and loan type can shift the range of offers.
The bottom line
Mortgage rates are built from the bottom up. The 10-year Treasury yield sets the base, investor demand for mortgage bonds and lender costs add the spread, and your credit, down payment, loan choices and points determine where your offer lands. The Fed influences the base and the spread, but it does not set the rate you pay. Because rates and fees vary by lender, the CFPB recommends comparing Loan Estimates from several lenders, asking for the same points or credits from each, and looking at the APR alongside the rate. To follow the Treasury yields and Fed decisions that move mortgage rates, check our Markets Live center.
Sources
- Consumer Financial Protection Bureau (CFPB), Ask CFPB: Mortgage interest rate vs. APR, Credit scores and mortgage rates, Points and lender credits, Rate locks, Fixed-rate vs. adjustable-rate mortgages and Mortgage credit checks
- Consumer Financial Protection Bureau (CFPB), Owning a Home, Explore interest rates
- Freddie Mac, Primary Mortgage Market Survey, weekly averages as of Oct. 15, 2026
- Fannie Mae Economic and Strategic Research, What Determines the Rate on a 30-Year Mortgage? (Dec. 11, 2024)
- Board of Governors of the Federal Reserve System, Finance and Economics Discussion Series, How the Federal Reserve’s Large-Scale Asset Purchases (LSAPs) Influence Mortgage-Backed Securities (MBS) Yields and U.S. Mortgage Rates
