Factors That Impact Mortgage Rates

Understanding the Dynamics Behind Mortgage Rates

If you plan to buy or sell a home in the near future, you’re probably keeping an eye on the mortgage rate. Recent years have seen a whirlwind of activity in this area, with rates hitting unprecedented lows, then surging, and now beginning to stabilize somewhat. But what drives these fluctuations?

The forces behind mortgage rate changes are manifold and complex. Below, we dive into key factors that significantly shape these rates.

Influence of Inflation and the Federal Reserve

Though the Federal Reserve (The Fed) does not set mortgage rates directly, its adjustments to the Federal Funds Rate in reaction to inflation, economic shifts, employment data, and other factors indirectly influence them. When the Federal Reserve tackles inflation by adjusting the federal funds rate, this move can have a knock-on effect on mortgages. Rising inflation and expectations of future Fed rate hikes tend to push mortgage rates higher. Conversely, mortgage rates often decrease if there’s anticipation of Fed rate reductions and slowing inflation. In recent times, the Fed’s increase in the Federal Fund Rate to counteract inflation has led to a corresponding rise in mortgage rates. However, there’s optimism among industry experts like Danielle Hale, Chief Economist at Realtor.com, who predicts: “Mortgage rates are expected to moderate in 2024 as inflation conditions improve…” There’s even talk that the Fed may actually cut the Fed Funds Rate this year because inflation is slowing down, even though it’s not yet back to their ideal target.

The Role of the 10-Year Treasury Yield

Mortgage lenders also use the 10-year Treasury yield as a benchmark for setting interest rates on home loans. An increase in the yield generally results in higher mortgage rates and vice versa. While the gap between the 10-year Treasury Yield and the 30-year fixed mortgage rate has historically been stable, recent fluctuations indicate potential for mortgage rates to decrease. Monitoring the treasury yield trends can provide insights into future mortgage rate movements.


With the Federal Reserve’s upcoming meeting, industry experts are poised to assess its decisions and their broader economic implications. To effectively manage the potential shifts in mortgage rates and their effects on your home purchase plans, enlisting the support of seasoned professionals is advisable.