What Makes Mortgage Rates Go Up and Down? Key Factors Explained

Let’s face it—mortgage rates can feel like a moving target. One day you see a great rate, the next day it’s bumped up by half a point, and suddenly your monthly payment looks a lot different. So, why do mortgage rates change so much? And more importantly, how do those changes affect you as a buyer or homeowner?

As your friendly neighborhood mortgage expert here in Florida, I’m breaking down the most important factors affecting mortgage rates in plain English. Whether you're buying your first home or thinking about refinancing, understanding what moves rates up or down can help you make smarter financial decisions.

Why Mortgage Rates Change (and Why It Matters to You)

Before we jump into the technical stuff, here’s why this all matters: mortgage rates directly impact how much house you can afford. Even a small shift in rates can mean the difference between getting that dream kitchen or settling for a fixer-upper.

Let’s say you’re looking at a $400,000 home. With a 6.5% rate, your monthly principal and interest might be around $2,528. But at 7.0%, that jumps to $2,661. That’s an extra $1,596 a year—just because of a half-point difference. Ouch.

That’s why tracking current mortgage rates and knowing what influences them gives you an edge, whether you’re buying today or planning for the future.

1. Federal Reserve Policy & Interest Rates

Here’s the big one everyone talks about—the Fed.

How the Fed Funds Rate Influences Mortgages

The Federal Reserve doesn’t directly set mortgage rates, but it does control the federal funds rate, which is the rate banks charge each other to borrow money overnight. When the Fed raises that rate, it often leads to higher borrowing costs across the board—including credit cards, auto loans, and yes, mortgages.

But Here’s the Twist...

Mortgage rates don’t always move in lockstep with the Fed. That’s because they’re influenced by future expectations—what investors think the Fed will do, rather than what it’s doing today. Sometimes, mortgage rates even drop after a Fed hike if the market believes the hikes are done.

2. Inflation Trends

Inflation is basically the rate at which prices go up. When inflation rises, the value of money drops—and lenders don’t like that.

Why Do Lenders Raise Rates During Inflation?

Because they want to make sure the money you repay in 10, 20, or 30 years is still worth something. So if inflation is rising, mortgage rates often follow.

One key measure to watch is the CPI (Consumer Price Index). When the CPI goes up, mortgage rates often tag along.

3. Economic Growth Indicators

Here’s where things get a little more “big picture.”

Strong Economy = Higher Rates (Usually)

When the economy is doing well—think rising wages, strong job growth, increasing consumer spending—there’s more demand for money. That pushes up interest rates, including those for mortgages.

GDP Growth & Jobs Data Matter

Lenders and investors watch things like GDP reports, employment numbers, and retail sales to gauge economic strength. If those indicators are hot, mortgage rates may climb in response.

4. Housing Market Conditions

Yes, the housing market itself plays a role.

High Demand Can Push Rates Up

When demand for homes is high and supply is low, lenders know they have eager buyers lined up. They might not need to offer the lowest rates to attract business.

Inventory Shortages = Higher Home Prices = Rate Sensitivity

When there aren’t enough homes to go around, prices rise, and buyers become more sensitive to mortgage rates. This can sometimes cause rates to inch up as lenders try to balance affordability with profit.

5. The 10-Year Treasury Yield

Now here’s a secret many people don’t know: mortgage rates tend to follow the 10-year U.S. Treasury yield. Why?

Because mortgages (especially 30-year fixed ones) typically get paid off or refinanced in about 10 years. So investors use the 10-year Treasury as a benchmark for mortgage pricing.

What’s the 10-Year Yield Telling Us Now?

When the 10-year yield rises, mortgage rates often rise too. And when it drops, mortgage rates tend to fall.

6. Global Economic Events

Yes, international events can affect U.S. mortgage rates, too.

Pandemics, Wars, Trade Deals—They All Count

When there’s uncertainty in global markets—think war in Ukraine, COVID-19 shocks, or major trade negotiations—investors often move their money into “safe” assets like U.S. Treasuries. This can push yields (and mortgage rates) down.

But if foreign economies boom or central banks overseas raise rates, that could cause our rates to rise as well. It’s all connected.

7. Lender Competition & Profit Margins

Not all mortgage lenders offer the same rates, even on the same day.

Why Do Some Lenders Offer Better Rates?

Because they have different overhead costs, risk appetites, and profit goals. Some lenders, like us at Midwest Mortgage, work hard to keep margins lean and pass the savings to you.

How Midwest Mortgage Finds Competitive Rates

We shop across a wide range of wholesale lenders, keep our operations efficient, and prioritize transparency so that you can get access to some of the most competitive mortgage rates available—without hidden fees or surprises.

8. Government Policy & Mortgage-Backed Securities

Ever heard of Fannie Mae or Freddie Mac? These two government-sponsored enterprises buy mortgages from lenders and sell them to investors as mortgage-backed securities (MBS).

Why This Matters

When demand for MBS is high, mortgage rates tend to stay low. When demand drops (especially during a Fed pullback or “quantitative tightening”), rates go up because lenders need to offer more attractive returns to investors.

How to Get the Best Mortgage Rate Possible

If you're asking, "When will mortgage rates go down?"—the honest answer is, no one knows for sure. But there are things you can do right now to position yourself for the best possible rate:

• Improve your credit score
  
• Reduce your debt-to-income ratio
  
• Shop multiple lenders (hint: Midwest Mortgage makes this easy)
  
• Lock your rate when the timing is right
  

Pro tip: even a quarter-point difference in your rate can save you thousands over the life of your loan.

Conclusion: Smart Strategies in Any Rate Environment

Mortgage rates are always moving—it’s just part of the game. But when you understand what drives those changes, you’re better equipped to time your purchase or refinance and lock in a deal that works for your budget.

Whether you’re buying your first home, refinancing an existing mortgage, or just curious about your options, Midwest Mortgage is here to help. We’ll guide you through the market, explain your choices clearly, and help you get the best rate possible—without the stress.

FAQs

1. Will mortgage rates go down in 2025?‍

No one can say for sure, but many analysts expect rates to gradually decline if inflation cools and the Fed eases monetary policy. Keep an eye on economic trends—and talk to your lender about timing.

2. What's considered a "good" mortgage rate?‍

That depends on the market and your financial profile. A “good” rate for one person might be 7%, while another could qualify for 6.25%. What matters most is locking in a rate that works for your budget.

3. How often do mortgage rates change?‍

Mortgage rates can change daily—sometimes even multiple times a day—based on market fluctuations and lender policies.

4. Can I negotiate my mortgage rate?‍

Absolutely! Always ask if your lender can offer better terms. Also, comparing quotes from multiple lenders (like we do at Midwest Mortgage) can help you find the most competitive offer.

5. Do higher rates mean I can't afford a home?‍

Not necessarily. While higher rates do impact affordability, you may still qualify for a loan that fits your budget. It just means being strategic about timing and loan type.

6. How does refinancing work when rates drop?‍

When rates drop significantly below your current mortgage rate, refinancing lets you replace your loan with a new one at a lower rate—potentially saving you thousands over time.

Ready to explore your mortgage options or get a custom rate quote? Let’s chat. At Midwest Mortgage, we’re here to make the process simple, transparent, and built around you.