Mortgage rates can feel like they move on their own schedule, but they’re shaped by a mix of broad economic forces and details specific to you as a borrower. Understanding both halves of the equation helps you know what you can and can’t control.
Macro Factors Outside Your Control
Lenders price mortgages based on the cost of money in the broader economy. Key drivers include:
- The bond market: Mortgage rates track the yield on 10-year Treasury bonds more closely than they track the Federal Reserve’s short-term rate.
- Inflation expectations: When investors expect higher inflation, they demand higher yields, pushing mortgage rates up.
- Federal Reserve policy: The Fed doesn’t set mortgage rates directly, but its actions influence borrowing costs throughout the economy.
- Mortgage-backed securities demand: Most mortgages are bundled and sold to investors; when demand for these securities is strong, rates tend to ease.
Personal Factors You Can Influence
On top of the baseline market rate, lenders adjust your individual rate based on:
- Credit score: Higher scores unlock lower rates and better terms.
- Down payment size: Putting more money down reduces the lender’s risk.
- Loan type and term: A 15-year loan typically carries a lower rate than a 30-year loan.
- Debt-to-income ratio: Lower existing debt relative to income signals lower risk.
- Property type and occupancy: A primary residence usually gets a better rate than an investment property.
What This Means for You
While you can’t control the bond market, you can control your credit profile, savings, and shopping strategy. Comparing offers from multiple lenders within a short window is one of the most effective ways to make sure you’re getting a competitive rate for your specific situation.