What Really Affects Mortgage Rates? Let’s Break It Down!

If you’ve been keeping an eye on mortgage rates, you’ve probably noticed they seem to fluctuate quite a bit. While it might feel like there’s no rhyme or reason, there are a few key factors that influence these changes. Let’s take a closer look at what drives mortgage rates so you can better understand what to expect.

The Federal Reserve and Interest Rates

The Federal Reserve (or “the Fed”) plays a major role in determining mortgage rates. When the Fed adjusts interest rates, it directly impacts how much it costs for banks and lenders to borrow money. If the Fed raises rates, mortgage rates tend to follow suit, making borrowing more expensive. Conversely, when the Fed lowers rates, mortgage rates usually drop, making it more affordable to borrow. Understanding the Fed’s moves can help you predict potential changes in your mortgage rate.

Inflation’s Impact

Inflation is another major factor influencing mortgage rates. When inflation rises, it means the value of money decreases, and lenders may raise interest rates to protect their profitability. This helps them maintain the return on their investments despite the decreased value of money. Essentially, higher inflation means higher mortgage rates, and that’s something to keep in mind if you’re planning to buy or refinance soon.

Economic Conditions (Jobs, Stocks, and Global Markets)

The overall health of the economy has a big impact on mortgage rates as well. When the economy is strong (think low unemployment rates and healthy market conditions) lenders are more willing to offer lower rates. On the other hand, if there’s economic instability or uncertainty (such as a recession or global event), rates may increase as lenders take on more risk. Keeping an eye on economic conditions can help you get a sense of where mortgage rates might be heading.

Your Credit Score and Down Payment

Your personal financial situation also plays a role in the rate you receive. Lenders look at your credit score to assess your reliability as a borrower. A higher credit score typically means you’re less of a risk, and you may be offered a lower rate. Additionally, a larger down payment shows lenders you’re financially stable, which can also help you secure a more favorable rate. In short, the better your financial health, the better your chances of getting a competitive rate.

The Latest from the Federal Reserve

In its most recent meeting in July 2025, the Federal Reserve decided to keep the federal funds rate unchanged for now. After reducing the rate three times in late 2024, there’s been no further cuts this year.

While mortgage rates aren’t directly tied to the Fed’s rate, they typically follow similar trends. If the Fed raises rates, mortgage rates often rise as well, and if the Fed cuts rates, mortgage rates may decrease.

Looking ahead, the next Fed meeting is scheduled for September 16 and 17, with predictions pointing to an 87% chance that the Fed will lower the federal funds rate. If that happens, mortgage rates could trend downward in the weeks following. However, these expectations can change, so it’s always a good idea to stay informed.

Should You Wait to Buy Until Mortgage Rates Go Down?

It might seem tempting to wait for mortgage rates to drop, but that may not be the best strategy. Mortgage rates are just one part of the equation—home prices also play a huge role.

Right now, there’s a shortage of homes, especially in the price range that first-time buyers are looking for. When demand is high and supply is low, home prices stay strong, even if mortgage rates go down.

Even with talk of a potential recession, if rates drop, more buyers may jump in, increasing competition and keeping prices steady. In short, waiting for rates to drop might not be worth it if home prices continue to rise.

Tips for Understanding Mortgage Rates and Moving Forward

If you’re feeling uncertain about mortgage rates, don’t worry, you’re not alone! Here are a few tips to help you feel confident as you move through the mortgage process:

• Get pre-approved early so you have a clear understanding of what you can afford.
• Monitor your credit score to ensure it’s in the best shape possible.
• Stay informed about market trends, but remember that rates are just one part of your homebuying journey.
• Communicate openly with your lender: Share all the necessary documents on time and keep an open line of communication to ensure a smooth approval process.

At Intra-Mortgage, our experienced loan officers are here to guide you every step of the way. We understand that mortgage rates can be confusing, but we’re committed to helping you navigate through them with clear, personalized advice. Whether you’re a first-time homebuyer or looking to refinance, we will help you understand your options and find the right rate for your situation.

To navigate mortgage rates with clarity and confidence, fill out the form below and one of our loan officers will be in touch.