Mortgage Rates
How Mortgage Rates Are Set (and How to Lock the Best One)
Mortgage rates are not set by the Federal Reserve directly. Here's what actually moves them — and how to lock smart.
Quick Answer
Mortgage rates track the 10-year Treasury yield and mortgage-backed-security (MBS) prices, not the Fed Funds Rate. Your personal rate is the headline rate plus or minus adjustments for credit score, loan-to-value, occupancy, loan type, and points. Lock when you have a signed contract and rates are at a level you're comfortable paying long-term.
Key takeaways
- Rates move daily with MBS pricing.
- Credit score, LTV, and property type adjust your rate.
- Discount points buy a lower rate (1 point ≈ 0.25% lower rate).
- Rate locks typically run 30–60 days; longer locks cost more.
- Refinancing later is an option if rates drop materially.
What actually moves mortgage rates
Lenders sell most loans onto the secondary mortgage market as mortgage-backed securities. When investors demand higher yields on those securities, mortgage rates rise. The Federal Reserve's policy moves matter only because they affect investor expectations about inflation and growth.
Why your rate is different from the headline rate
Daily rate headlines reflect a benchmark borrower: 740+ credit, 25% down, single-family primary residence, no points. Anything different — lower credit, smaller down payment, condo, investment property — carries a 'loan-level price adjustment' that raises your rate or your closing costs.
Should you pay points?
Discount points let you pre-pay interest to permanently lower your rate. The break-even is usually 4–7 years. If you plan to keep the loan that long and have cash to spare, points often pay off; if you may move or refinance sooner, skip them.
Frequently asked questions
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