Lenders set mortgage rates based on their own funding costs, risks, and the prevailing economic landscape.
- The U.S. central bank does not set mortgage rates, but its monetary policy influences how much homebuyers pay.
- When the Fed lowers this rate, it reduces banks’ borrowing costs and tends to push down bond yields.
- Rate cuts by the Federal Reserve tend to lead to lower rates, but it’s not always the case.
Mortgage rates are the interest rates buyers pay on a home loan, expressed as a percentage of the amount borrowed. Borrowers can choose from various mortgage types, such as the 30-year fixed-rate mortgage or an adjustable-rate mortgage, or ARM.
The Freddie Mac Primary Mortgage Market Survey, or PMMS, tracks average mortgage rates each week and reflects the typical rates lenders offer qualified borrowers. The survey publishes weekly averages for products such as 30-year and 15-year fixed mortgages, based on loan applications submitted nationwide.
How Lenders Set Mortgage Rates
While Freddie Mac’s Mortgage rates serve as a benchmark, lenders set mortgage rates based on their own funding costs, risks, and the prevailing economic landscape. One major influence is the yield on long-term Treasury securities, which serves as a reference for the available risk-free rate.
Lenders compare the return on home loans with returns on long-term government bonds. When Treasury yields rise, which is itself affected by factors like the prevailing fed funds rate and fiscal health, lenders usually raise mortgage rates.
A borrower’s individual rate also depends on credit score, down payment, loan type, and other extra costs. Lenders charge higher rates when they perceive more risk. While the PMMS gives a national view of rates on conforming loans, the actual offers borrowers receive can differ widely across lenders.
The Fed’s Influence: What Rate Cuts Really Change
The U.S. central bank does not set mortgage rates, but its monetary policy influences how much homebuyers pay. The Fed sets the federal funds rate, which is the rate at which banks lend to each other overnight. When the Fed lowers this rate, it reduces banks’ borrowing costs and tends to push down bond yields, barring any other factors.
Lower bond yields can put downward pressure on mortgage rates as investors adjust their expectations for growth and inflation. Because lenders base mortgage pricing on long-term yields, mortgage rates typically move in line with long-term bonds, which respond indirectly to Fed policy.
Why Mortgage Rates Don’t Always Fall When Fed Cuts Rates
Rate cuts by the Federal Reserve tend to lead to lower rates, but it’s not always the case. Freddie Mac’s weekly survey shows that average 30-year mortgage rates sometimes remain elevated or even climb during periods of Fed cuts. This usually occurs when long-term Treasury yields rise because investors expect higher inflation or stronger economic growth.
Mortgage rates track expectations for inflation, economic conditions, and bond demand. If investor concerns about inflation persist, long-term yields tend to rise even when the Fed trims short-term rates. In September 2025, for example, the Fed’s rate cut came amid uncertainty about future reductions, which drove mortgage rates higher.
Lenders may also hold rates higher during periods of market uncertainty. Because a mortgage is a long-term loan, lenders focus more on long-term outlooks than on short-term shifts in Fed policy.
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