The mortgage interest rate factor

Key Insights

• Mortgage interest rates determine your monthly payment, as well as what you’ll pay for your home in its entirety.
• Your mortgage interest rate is mainly determined by the 10-Year Treasury Note and the mortgage bond market.
• Having a good credit score and borrowing history will allow you to get the best rate possible.

Buying a house is one of the largest financial investments many people will ever make. Therefore, it makes sense that when people buy a house, they want to get a good deal. And one of the factors in determining how much you will pay for your home is the mortgage rate.

The selling price of the home is easy to understand, but it’s also important to understand mortgage interest rates and how they can affect your finances in the short and long term. By factoring in the interest rate, you will determine your monthly payment, as well as how much you will pay for a home over the lifetime of the loan.

What are mortgage interest rates?

Mortgage interest rates (often simply referred to as mortgage rates) change depending on how the economy is faring at any given time. However, the mortgage rate you’re offered by your lender will be impacted by factors like your credit score, income and other financial circumstances.

You can get a rough idea of what your monthly payments would be, as well as the total cost of your mortgage, by using a mortgage calculator.

Different types of mortgage rates

There are different kinds of mortgage rates available to buyers, including an adjustable rate mortgage and a fixed mortgage rate.

• Adjustable Rate Mortgage (ARM): The interest rate will change at set periodic times according to the original benchmark index.
• Fixed mortgage rate: The interest rate will stay the same for the entire life of the mortgage.

A fixed mortgage rate gives you security in knowing what your costs will be, while an adjustable rate mortgage allows you the opportunity to potentially receive a better rate in the future or could lead to higher monthly payments over time. Talk to your mortgage advisor about what your options are and what makes the most sense for your finances.

What impacts mortgage rates?

Rates have varied incredibly over the years, with 30-year fixed-rate mortgages reaching a high of 18.3% in the 1980s. Conversely, rates went as low as 2.6% in 2020 during the pandemic. With such a large swing, how can buyers predict mortgage rates?

While some look to the Federal Reserve to indicate if mortgage rates increase, decrease or remain the same, it’s more accurate to look at the 10-Year Treasury Note. The federal funds rate looks at short-term lending, but the 10-Year Treasury Note looks at long-term loans. Because of this, “the 10-Year Treasury has a significantly larger and more direct impact on mortgage rates than the federal funds rate,” according to Fannie Mae.

The rate on the 10-Year Treasury Note is determined by what shorter-term interest rates are predicted to be, plus a premium to compensate lenders for the risk associated with the bond. Meanwhile, the short-term interest rates are based on the expectations of monetary and fiscal policy, economic growth and inflation.

Should you wait for favorable rates?

When rates are low, home affordability increases. Conversely, when rates go up, the amount that buyers can afford decreases. It’s natural that home buyers would want to get as much home as they can for their money or pay the least amount for their dream home as possible. However, waiting for favorable rates is not necessarily a good real estate strategy.

Not only is it possible that you’d lose out on a property you love, but you’re also losing out on any equity that your home would make while you’re waiting. There’s an old REALTORⓇ adage, “Focus on time in the market, not timing the market.” And it’s true!

According to Keeping Current Matters, if you purchased a $400k home in January 2025, you could build more than $83,000 in household wealth over the next five years.

Get in touch with an expert

If you’ve been putting off entering the market due to rates, now is the time to connect with a trusted real estate agent to see what’s available and how you could benefit from acting now.

If you have any questions about mortgage rates or how they could impact your homeownership journey, reach out to Edina Realty to be put in touch with a local home mortgage consultant.

Prosperity Home Mortgage is an affiliate of Edina Realty. See Affiliated Business Arrangement Disclosure Statement