Introduction to Mortgage Rates
The average rate on a 30-year U.S. mortgage has dropped to 6.5%, extending a recent trend that is expected to give prospective homebuyers more purchasing power. This decrease in mortgage rates is a significant development in the housing market, which has been experiencing a slump since 2022.
Current Mortgage Rates
The long-term rate eased to 6.5% from 6.56% last week, according to mortgage buyer Freddie Mac. In comparison, the rate averaged 6.35% a year ago. Borrowing costs on 15-year fixed-rate mortgages also fell, with the average rate slipping to 5.6% from 5.69% last week. A year ago, it was 5.47%, Freddie Mac said.
By ALEX VEIGA, AP Business Writer
Factors Influencing Mortgage Rates
Mortgage rates are influenced by several factors, including the Federal Reserve’s interest rate policy decisions and bond market investors’ expectations for the economy and inflation. The Federal Reserve’s actions can impact bond investors’ appetite for long-term U.S. government bonds, such as 10-year Treasury notes, which lenders use as a guide to pricing home loans.
Recent Trends in Mortgage Rates
Rates have been mostly declining since late July amid growing expectations that the Fed will cut its benchmark short-term interest rate at the central bank’s meeting of policymakers later this month. A similar trend occurred in the leadup to September last year, when the Fed cut its rate for the first time in more than four years. At that time, the average rate on a 30-year mortgage dropped to a 2-year low of 6.08%, but soon climbed again, reaching above 7% by mid-January.
Impact of Federal Reserve Decisions
The Fed has kept its main interest rate on hold this year due to concerns about inflation potentially worsening because of President Donald Trump’s tariffs. However, in a high-profile speech last month, Federal Reserve Chair Jerome Powell signaled the central bank may cut rates in coming months amid concerns about weaker job gains following a grim July jobs report.
Job Market and Mortgage Rates
The government’s August job market snapshot is due out Friday. Ahead of it, the yield on the 10-year Treasury fell to 4.18% from 4.22% late Wednesday. According to Hannah Jones, senior economic research analyst at Realtor.com, “Historically, a weaker or softer-than-expected jobs report fuels optimism for Federal Reserve rate cuts and can lower bond yields, thereby nudging mortgage rates downward.” Conversely, a robust job report may reinforce inflation concerns and elevate Treasury yields, putting upward pressure on mortgage rates.
Housing Market Trends
The housing market has been in a slump since 2022, when mortgage rates began climbing from historic lows. Sales have remained sluggish so far this year as the average rate on a 30-year mortgage has mostly hovered above 6.5%. The average rate is now at its lowest level since Oct. 17, when it was 6.44%.
Benefits for Homebuyers
If the trend continues, homebuyers will benefit from more affordable financing. However, lower mortgage rates could also bring in more buyers, making the market more competitive. Economists generally expect the average rate on a 30-year mortgage to remain near the mid-6% range this year.
Conclusion
The recent drop in mortgage rates is a positive development for the housing market, offering more purchasing power to prospective homebuyers. As the Federal Reserve considers cutting its benchmark short-term interest rate, mortgage rates may continue to decline, making home financing more affordable. However, the housing market remains competitive, and homebuyers should be prepared to act quickly to take advantage of lower rates.
FAQs
- What is the current average rate on a 30-year U.S. mortgage?
The current average rate on a 30-year U.S. mortgage is 6.5%. - How do Federal Reserve decisions impact mortgage rates?
The Federal Reserve’s decisions on interest rates can influence bond investors’ appetite for long-term U.S. government bonds, which lenders use as a guide to pricing home loans. - What is the expected trend for mortgage rates in the coming months?
Economists generally expect the average rate on a 30-year mortgage to remain near the mid-6% range this year. - How will lower mortgage rates affect the housing market?
Lower mortgage rates could bring in more buyers, making the market more competitive, but will also offer more purchasing power to prospective homebuyers. - What is the significance of the 10-year Treasury yield in determining mortgage rates?
The yield on the 10-year Treasury is used by lenders as a guide to pricing home loans, and changes in the yield can impact mortgage rates.
Originally Published: September 4, 2025 at 12:27 PM EDT
