How to Use This
This is the prose layer. The evidence layer is Mortgage Rates — every claim there carries a confidence tag and a source. Web version: https://concepts.rycolston.com/mortgage-rates/
Rule before you record anything: if a sentence here matters, open Mortgage Rates and check its tag. V and P are safe. S needs a hedge. ? does not get said out loud.
Seven chapters. Chapter 1 is the whole answer in one picture. Chapters 2 through 4 are the three things that move the market rate. Chapter 5 is the history. Chapter 6 is why nobody can sell. Chapter 7 is how the market rate becomes your rate.
Table of Contents
- Three Layers — the ten-year, the spread, and you
- The Fed Sets the Overnight Rate, Not Yours — what the Fed actually controls
- The Fed's Other Lever — two trillion dollars of mortgage bonds
- September 2026 — a split Fed and a rising ten-year
- Four Percent Was One Decade Out of Six — 1971 to now
- Locked In — why a 3 percent loan stops a sale
- From the Market Rate to Your Rate — score, down payment, points, APR
1. Three Layers
Evidence: §0, §1
A mortgage rate is built in three layers.
The bottom layer is the ten-year Treasury yield. That is what investors want to lend money to the United States for ten years. Last week it was about 4.97 percent.
The middle layer is a spread. It is usually about one and a half to two points. It pays the investor for the chance that you refinance early, it pays Fannie Mae or Freddie Mac for guaranteeing the loan, and it pays the lender for making it. Last week the spread was 1.79 points.
The top layer is you. Your credit score, your down payment, your loan type, and whether you pay points move your rate up or down from the market rate.
Add the first two layers and you get the rate on the news: 6.76 percent. Add the third and you get the rate on your paperwork.
Say it this way: The mortgage rate is the ten-year plus two. The Fed does not set it. The bond market does.
2. The Fed Sets the Overnight Rate, Not Yours
Evidence: §1
The Federal Reserve sets one number: the overnight rate banks charge each other. Right now that is a range of 3.50 to 3.75 percent. That is not a mortgage rate. It is not even a ten-year rate.
Here is the proof. Since December 2025 the Fed has not moved. In that same stretch the mortgage rate went from 5.98 percent in February to 6.76 percent in September. The Fed sat still. The ten-year climbed. The mortgage followed the ten-year.
The Fed's overnight rate does matter. When the Fed raises it, the ten-year usually rises too, because investors expect tighter money for longer. In 2022 the Fed raised seven times, from near zero to 4.5 percent, and the mortgage rate went from 3.22 to 7.08 in ten months. But the link is loose. When a customer asks why the Fed cut and their rate did not fall, the answer is that the Fed cut the overnight rate and the bond market did not follow.
3. The Fed's Other Lever
Evidence: §2
The Fed has a second lever most people never hear about. It buys mortgage bonds.
In March 2020 the Fed cut to zero and said it would buy "at least $200 billion" of mortgage-backed securities. It kept buying for two years. When the biggest buyer in the world is buying your bonds, the price goes up and the yield goes down. That is how the mortgage rate hit 2.65 percent in January 2021.
In March 2022 the Fed said it would stop buying and start letting the bonds run off. It still holds about 1.9 trillion dollars of them, and it is shedding about 190 billion a year. That is a steady seller in the market where mortgage rates are made. It is one reason the spread over the ten-year got so wide in 2023.
Say it this way: In 2020 the Fed bought mortgage bonds and rates hit two and a half. In 2022 it stopped, and they hit seven. It still owns two trillion of them.
4. September 2026
Evidence: §3
The Fed is split. In January two members voted to cut. In July three members voted to hike. Inflation is 3.4 percent against a 2 percent goal. The ten-year is near 5 percent, the highest it has been this year.
The next meeting is tomorrow, September 17. Whatever the Fed does, remember chapter 2. A quarter-point move in the overnight rate is not a quarter-point move in a mortgage.
5. Four Percent Was One Decade Out of Six
Evidence: §4
Freddie Mac has published the 30-year rate every week since April 1971. The decade averages: about 9 percent in the 1970s, almost 13 in the 1980s, 8 in the 1990s, 6 in the 2000s, 4 in the 2010s, and about 5 and a half so far in the 2020s.
The all-time high was 18.63 percent, in October 1981. The all-time low was 2.65, in January 2021. Those are forty years apart and sixteen points apart.
Every buyer under forty thinks 4 percent is normal. It was one decade out of six. The fifty-five-year average is closer to seven.
Say it this way: Six and three-quarters is not high. It is the middle of the last fifty years. Two and a half was the strange part.
6. Locked In
Evidence: §5
Almost all 50 million American mortgages are fixed-rate, and most were written when rates were far lower than today. That means selling a house means giving up a cheap loan.
FHFA measured it. For every point that today's rate is above the rate on the seller's loan, the chance they sell drops about 18 percent. In late 2023 that cut home sales by fixed-rate borrowers by more than half and kept about 1.3 million sales from happening.
A seller with a 3 percent loan is almost four points under today's market. That is four times 18 percent. That is why so few houses came to market in 2023, and why more are coming now as the gap narrows and life forces moves anyway.
7. From the Market Rate to Your Rate
Evidence: §6
The rate on the flyer assumes a perfect borrower. Here is what moves a real one.
Credit score and down payment, together. Fannie Mae publishes a grid of fees by score and loan-to-value. A buyer with a 780 score putting 20 percent down pays 0.375 percent of the loan in fees. A buyer with a 740 score and the same down payment pays 0.875. On a $400,000 loan that is $1,500 against $3,500. Lenders turn those fees into rate, so the 740 buyer's rate is about an eighth to a quarter point higher for the same house.
Points and credits. One point is one percent of the loan, paid at closing, to lower the rate. A lender credit is the reverse: a higher rate in exchange for the lender paying costs. The math on whether points pay off is on the buydowns page.
Rate versus APR. The rate is what you pay each year to borrow. The APR is the rate plus the fees and points, spread over the loan. The law puts the APR on every ad so two lenders' offers can be compared.
Fixed versus adjustable. An ARM is an index plus a margin. The index is usually SOFR, the overnight Treasury-backed lending rate. The margin is the lender's fixed add-on. When the index moves, the payment moves, up to the caps.
Loan term, loan type, location, loan size. Shorter loans get lower rates. Government loans price differently from conventional. Rates vary a little by state. Very small and very large loans cost more.
Say it this way: The flyer rate is for a 780 score with 20 percent down. Everyone else pays a little more, and Fannie Mae publishes exactly how much.
What is still unverified
Check Mortgage Rates §"Not covered" before airing: the prepayment-risk explanation of the spread, guarantee-fee levels, rate-lock terms, and pre-1971 rates.