Factors influencing current mortgage rates
Today’s mortgage rates are influenced by economic and market conditions, as well as personal factors. The rate you’re quoted by a lender might be higher or lower than the national average. Here are some of the items considered when calculating your mortgage rate:
- 10-year Treasury yield: Current mortgage rates, especially on a 30-year fixed-rate mortgage, are related to movements in the 10-year Treasury yield.
- Mortgage-backed securities: The rate investors earn on mortgage-backed securities also plays a role. Spreads between mortgage-backed securities and Treasury yields, as well as between what lenders offer borrowers and mortgage-backed security rates, impact current mortgage rates.
- Investor sentiment: Perceptions about fiscal policy and economic conditions can affect how Treasuries move, as well as how much risk lenders feel comfortable taking on.
- Personal credit history: The information in your credit report and your credit score influences your mortgage rate quote. Lenders examine your credit score and history to determine how likely you are to repay a mortgage.
- Down payment: Your mortgage rate might be lower if you make a larger down payment. Though you can put down as little as 3% for a conventional loan if your lender allows it, you’re likely to qualify for a better interest rate if you have a down payment of at least 20%.
- Points paid: Mortgage points, also known as discount points, are fees paid upfront as a way to directly reduce your rate and lower your monthly payments. Each point, which represents 1% of your loan amount, can potentially reduce your rate by up to 0.25 percentage points.
- Loan term: A 15-year mortgage rate is usually lower than a 30-year rate because it poses less risk to the lender. If you opt for a shorter loan term, you might qualify for a lower interest rate—and pay off your home sooner—but you’ll likely have higher monthly payments.
How to choose the right mortgage for your financial goals
When considering a mortgage, review your financial situation and goals. Often, 30-year fixed-rate mortgages are chosen because they spread a large payment over a longer period of time, making monthly payments more affordable. Even though the loan costs more overall, it might be more affordable on a day-to-day basis.
If your goal is to become debt-free sooner while paying less interest and you can afford a higher monthly payment, a shorter-term loan might make sense. Let’s say you get a $350,000 loan. Here’s what you might pay with different mortgage terms:
- 30-year loan (6.23%): Monthly payment of $2,150.46 and total interest amount of $424,165.45
- 20-year loan (6.05%): Monthly payment of $2,517.62 and total interest amount of $254,227.60
- 15-year loan (5.63%): Monthly payment of $2,883.99 and total interest amount of $169,118.91
- 10-year loan (5.68%): Monthly payment of $3,829.71 and total interest amount of $109,565.49
Keep in mind that these calculations reflect only what you’re likely to pay for monthly principal and interest. You also need to budget for homeowners insurance and property taxes, which can vary significantly depending on where your property is located and the type of home you buy. If your property has a homeowners association, you might also owe monthly dues.
You also should factor the cost of utilities, regular maintenance and surprise repairs into your budget as you shop for a mortgage. Make sure you have enough room in your budget to cover the regular monthly payment in addition to the cost to maintain your home. A 10- or 15-year loan can help you build equity faster and pay off your mortgage sooner, but it might not be the best choice if the monthly payment would strain your budget too much.
One strategy might be to choose a longer loan, but make extra payments to pay down the debt faster and reduce the amount of interest you pay. With this approach, you can choose to pay extra each month, but if you need to cut back due to an emergency, you can revert to the required lower monthly payment with a lower risk of not being able to meet the obligation. If you lock into a shorter loan term with a higher payment, you can’t scale back payments later without risking the loss of the home.
What will happen to mortgage rates for the rest of 2025?
Mortgage rates have been trending steadily downward throughout much of the year, seeing home loan rates hit their lowest point in over a year near the end of October. While rates are expected to continue falling before the year’s end, analysts predict a modest dip, not a freefall. In its economic forecast, Fannie Mae projected that average mortgage interest rates will drop to 6.40% by the end of 2025 and dip further in 2026, ending the year at 5.90%. The Mortgage Bankers Association forecasts interest rates will remain in a range of 6.00% to 6.50% for the same period.
Economists expect the Fed to make one more cut before the end of the year, which could send mortgage rates lower by the end of 2025. The timing of a potential cut to the federal-funds rate depends on several factors, including the unemployment rate and inflation.