Business School with Sharran Srivatsaa How Mortgage Rates Work
Nov 4, 2025
Exploring the impact of mortgage rates reveals their importance beyond just real estate. Discover how they're calculated and the three main factors keeping rates high. Inflation's uneven persistence and uncertainties in the market contribute to risk premiums. Gain valuable insights for homebuyers navigating today's challenging lending environment. Learn practical tips for adjusting budgets, as well as strategies investors can use to ensure properties meet monthly payment obligations. Overall, it’s a deep dive into how mortgage rates shape economic confidence.
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Mortgages Follow The 10‑Year Treasury
- Mortgage rates are tied to the 10-year Treasury, not the Fed funds rate.
- Long-term loans price from long-term benchmarks, so Fed cuts don't directly lower mortgages.
Why Mortgage Rates Exceed Treasury Yields
- The spread is the markup between Treasury yields and mortgage offers.
- That spread covers lender costs, risk, and profit and has widened recently to nearly 3 percentage points.
Three Forces Keeping Rates High
- Three broad forces keep mortgage spreads elevated: uneven inflation, the Fed exiting MBS purchases, and investor risk aversion.
- Each force raises required returns or perceived risk, pushing mortgage costs higher.