Mortgage interest rates typically follow the yield of the 10-year U.S. Treasury closely. This can be seen in Figure 1, where they have moved in tandem for more than 30 years.
Mortgage rates are determined by credit score, loan-to-value ratio, inflation and more. Some or all of the mortgage lenders featured on our site are advertising partners of NerdWallet, but this does not influence our evaluations, lender star ratings or the order in which lenders are listed on the page.
Demand for the 10-year US Treasury Note can show investor confidence in the state of the economy. When investors have high confidence in the performance of the economy, they look for investments with a higher return than the 10-year Treasury Note.
The Federal Reserve influences mortgage rates, but doesn't set them. On Dec. 18, 2024, the central bank reduced the federal funds rate by one-quarter of a percentage point to a range of 4.25% to 4.5%, as markets had widely anticipated.
“Lenders typically set their rates based on the return they need to make a profit after accounting for risks and costs.” That said, they don't just pluck numbers out of the air. A mortgage loan is debt, and for context, lenders look to another type of debt: bonds.
While the Fed can influence long-term Treasury rates by creating incremental demand or supply (as a buyer or seller of Treasuries), the 10-year Treasury yield is determined by the market.
When the 10-year interest rate is higher than the 2-year rate, it's known as a "positive spread." Economic Expectations: The positive spread generally indicates that investors are more optimistic about the future state of the economy.
We sell Treasury Notes for a term of 2, 3, 5, 7, or 10 years. Notes pay a fixed rate of interest every six months until they mature. You can hold a note until it matures or sell it before it matures.
The prime rate is a baseline for lenders to determine interest rates on mortgages, personal loans, credit cards and other financial products – it's not the final rate you'll pay. The interest your lender charges will likely be higher than the prime rate.
In today's market, a 6% rate would be considered favorable. Be sure to read the fine print to confirm the APR is comparable and doesn't include hefty fees that significantly increase overall borrowing costs. Is a 3.75 Mortgage Rate Good? A 3.75% mortgage rate is also considered excellent in most market conditions.
How does mortgage interest work? Generally, mortgage interest rates follow the Bank of England's base rate. For example, if you have a tracker mortgage at 1% above the base rate and the Bank of England's base rate is 1%, your interest rate is 2%. If the base rate increases this will reflect in the interest to be paid.
The National Association of Realtors: NAR's quarterly outlook has 30-year mortgage rates ending 2024 at 6.1% and bottoming out around 5.8% toward the end of 2025. After that, we could see rates tick back up to 6.1% in 2026.
Taxation. Interest income from Treasury securities is subject to federal income tax but exempt from state and local taxes. Income from Treasury bills is paid at maturity and, thus, tax-reportable in the year in which it is received.
30-year mortgage rate, 10-year Treasury yield and federal funds effective rate. But it doesn't stop there. Mortgage rates are determined by adding a "spread" to the 10-year Treasury yield, which is historically around 1.5 to 2 percentage points to compensate investors for the higher risk of mortgages.
Expectations of short-term rates are influenced by investors' expectations for monetary and fiscal policy, economic growth, and inflation. Mortgage rates are determined by adding a spread to the benchmark 10-year Treasury note.
Considered one of the lowest-risk investments on the U.S. market, 10-year Treasurys are a “risk-free” benchmark against which other investments and debt are compared. (Three-month Treasury bills are another.) While no investment is ever completely risk-free, Treasury notes come close if held to maturity.
"If the 10-year treasury rate goes up, mortgage rates go up as well, so the investment in mortgages is still an attractive option compared to investing in treasuries. Conversely, if treasury rates go down, mortgage rates will decrease." Find out the best mortgage rates you could qualify for here.
Currently, Treasuries maturing in less than a year yield more than CDs. However, at maturities of one year and beyond, CDs yield a little more before taxes. Therefore, all things considered, it likely makes more sense to choose Treasuries over CDs for shorter-term investments, but it depends on your situation.
US 10 Year Note Bond Yield was 4.80 percent on Tuesday January 14, according to over-the-counter interbank yield quotes for this government bond maturity. Historically, the US 10 Year Treasury Bond Note Yield reached an all time high of 15.82 in September of 1981.
Investment strategists surveyed by Bankrate see the 10-year Treasury yield at 4.14 percent at the end of December 2025. That's up from the third-quarter 2024 prediction of 3.53 percent, but still slightly under 4.53 percent, the current trailing-12-month yield of the 10-year Treasury.
Your mortgage interest rate directly impacts your monthly payment, as well as your loan's total cost over the life of the loan.
Today's rates seem high compared with the recent 2% rates of the pandemic era. But experts say getting below 3% on a 30-year fixed mortgage is unlikely without a severe economic downturn.
So while the latest Fed rate cut may signal a favorable trend for borrowers, its effect on mortgage rates is likely to be gradual rather than transformative — and should a mortgage rate cut occur, it likely won't amount to the same percentage drop as the Fed rate cut, either.