Understanding what influences mortgage rates can help you make smarter home financing decisions. From inflation and the Federal Reserve to your personal financial profile, multiple factors affect the rates you’re offered. In this blog, we’ll break down the key influences to give you better insight into what drives mortgage rate changes — and what you can do about it.

Why it's important to understand what influences mortgage rates

If you're planning to buy a home or refinance an existing mortgage, understanding what influences mortgage rates is essential.

 Mortgage rates can affect how much you’ll pay each month, how much you can afford to borrow, and even how much home you can buy. Because rates fluctuate frequently, knowing the driving forces behind those changes can help you lock in a better deal at the right time.

Economic factors that influence mortgage rates

Several broad economic indicators shape mortgage rate trends on a national level. These include:

#1: Inflation

Inflation reduces the purchasing power of money over time. When inflation is high, lenders demand higher interest rates to compensate for the decreased value of future repayments. 

As a result, mortgage rates typically rise in inflationary environments. Conversely, when inflation is low, mortgage rates often fall.

#2: Federal Reserve monetary policy

The Federal Reserve doesn’t directly set mortgage rates, but its actions have a strong influence. The Fed adjusts the federal funds rate to manage inflation and stimulate or cool the economy. 

When it raises this rate, borrowing becomes more expensive across the board — including for mortgages. When it lowers the rate, mortgage rates often decline as well.

#3: Treasury yields

Mortgage rates closely follow the 10-year U.S. Treasury yield. Investors consider mortgage-backed securities (MBS) as comparable in risk to Treasury bonds, so when bond yields rise or fall, mortgage rates usually follow suit. Investors may demand higher returns on MBS if they anticipate more risk, which in turn raises mortgage rates.

Market forces and investor demand

Mortgage rates also reflect activity in global and domestic investment markets. What influences mortgage rates here? A few specific things:

#1: Demand for mortgage-backed securities

Mortgage lenders typically bundle home loans into mortgage-backed securities and sell them to investors. When demand for these securities is high, lenders can offer lower rates because they’ll earn a profit on volume. When demand falls, rates tend to rise to maintain profitability.

#2: Global economic and geopolitical events

Markets respond quickly to major events like recessions, wars, and pandemics. During uncertain times, investors often seek safe assets like U.S. Treasury bonds. That can lower yields — and mortgage rates along with them. 

For instance, mortgage rates fell sharply during the early months of the COVID-19 pandemic due to global economic fears and shifting investment behavior.

#3: Stock market performance

Although not a direct influence, stock market trends can play an indirect role in mortgage rates. When stocks are volatile or underperforming, investors may shift funds to bonds and mortgage-backed securities, pushing rates downward. When stocks rally, money often flows out of bonds, pushing mortgage rates up.

Personal and loan-specific factors

While national and global economic forces set the stage, individual borrowers’ profiles also heavily impact the mortgage rate offered. Some areas that are specific to you that impact your rate include your:

#1: Credit score

Your credit score is one of the most significant personal factors that affect the mortgage rate you’re offered. Higher credit scores indicate lower risk to lenders, typically resulting in lower interest rates. If your credit score is low, you’ll likely face higher rates.

#2: Loan-to-value ratio (LTV)

The LTV measures how much you’re borrowing compared to the home’s value. The lower your LTV — meaning you’ve made a larger down payment — the less risky your loan appears to lenders. A low LTV can help secure a better rate and avoid paying for private mortgage insurance (PMI). 

#3: Debt-to-income ratio (DTI)

Lenders evaluate your DTI to ensure you can manage your monthly mortgage payments along with other debts. A lower DTI signals greater financial stability and may lead to a more favorable rate.

#4: Loan type and term

The type of mortgage you choose — conventional, FHA, VA, or jumbo — can affect the rate, as can the loan term (e.g., 15-year vs. 30-year). Generally, shorter loan terms come with lower interest rates because they represent less risk for the lender. Similarly, an adjustable-rate mortgage (ARM) usually starts with a lower rate because it gives lenders the flexibility to raise the rate later.

#5: Location and property type

Rates can vary slightly depending on the state or region. This is due to different regulations, taxes, and lender competition. Property type also matters. Investment properties and second homes often come with higher rates than primary residences.

How comparing mortgage offers influences rates

What influences mortgage rates? Clearly, quite a few things. Some are in your hands, and some aren’t. While you can’t control inflation or Federal Reserve policy, you can control your lender choice, credit profile, and timing. And you can control how many rate quotes you get, helping you find the lowest possible one. 

Even small differences in mortgage rates can add up to tens of thousands of dollars over the life of a loan. That’s why it’s critical to shop around and compare offers from multiple lenders. 

By comparing rates side by side, you gain the power to negotiate better terms and reduce your overall borrowing costs. A proactive, informed approach will always put you in a stronger position.

Are you ready to get started with your mortgage rate comparison? Explore today’s top lenders and see how your personal profile stacks up. Don’t leave money on the table — start your rate comparison now and find the mortgage that fits your needs best.

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