What it is
Mortgage rates are the cost of borrowing money to purchase a home, paid by the borrower to the lender. These rates are influenced by various factors, including the Federal Reserve's monetary policy, inflation expectations, and the overall health of the economy. They can be fixed, meaning the rate remains constant for the loan's duration, or adjustable, where the rate can change periodically. The specific rate offered to a borrower also depends on their creditworthiness and the loan-to-value ratio.
When the Federal Reserve raises or lowers its target federal funds rate, mortgage rates often move in the same direction, though not always in lockstep, as they are more directly tied to the 10-year Treasury yield. Higher mortgage rates increase the monthly cost of homeownership, which can cool down housing demand and impact housing starts and retail sales for home-related goods. Conversely, lower rates can stimulate the housing market. Investors watch these rates to gauge consumer confidence and economic activity.
Why it matters
Mortgage rates directly affect housing affordability and your monthly payments, influencing decisions to buy, sell, or refinance a home. They are a key indicator of economic health.
Reviewed under editorial standardsUpdated September 26, 2026Not investment advice