AM Real Estate Ahmed MakkiyahNorthern Virginia Guide

Ask Ahmed · Mortgage rates explained

Why are mortgage rates going up?

“Ahmed, why are mortgage interest rates going up?” Here is my answer, short and simple, with a picture that moves.

The short answer

When prices keep going up (inflation), the people who lend money for mortgages want to earn more to make it worth their while. So they charge more interest, and rates go up.

Ahmed Makkiyah, REALTOR®

The white marble Eccles Building of the Federal Reserve, with an eagle over the entrance and a flag on the roof, across a lawn in fall
The Federal Reserve's Eccles BuildingConstitution Avenue, Washington

See it move

How it works, in four steps.

  1. 1 Prices keep risingThat’s inflation. Each dollar buys a little less.
  2. 2 Investors want a bigger returnMoney paid back later buys less, so bond investors ask to earn more.
  3. 3 ■ Bond price ↓● Yield ↑ Bond prices fall, yields riseInvestors pay less for 10-year Treasury bonds. Price and yield sit on a seesaw: when one goes down, the other goes up.
  4. 4 Mortgage rates go upMortgage bonds have to pay about as well as Treasuries, so lenders pass the higher yield on to borrowers.
A simplified picture. Other things move mortgage rates too, such as the economy and demand for mortgage bonds.1

Try it yourself

Turn up inflation and watch what happens.

Bond prices
10-year Treasury yield
Mortgage rates

Bars show direction only, not real rates. Move the slider, or tap a word under it.

The long column-lined facade of the U.S. Treasury Building along a quiet street in fall
The U.S. Treasury Building15th Street, Washington

A little more detail

Mortgage rates follow the 10-year Treasury, not the Fed.

Mortgage rates aren’t set by the Fed. They follow the 10-year Treasury yield, because the investors who buy mortgage bonds compare them to Treasuries. When inflation stays hot, those investors demand a higher return, so they pay less for bonds, and lower bond prices mean higher yields. Lenders pass that higher yield on to borrowers, so mortgage rates go up.1

What moves the 10-year yield

Four things push the 10-year yield up.

The 10-year yield goes up when investors want a bigger reward for lending money to the U.S. government for 10 years.1

  1. Inflation Often the biggest one

    If prices keep rising, the money investors get paid back later is worth less, so they demand a higher yield.

  2. The Fed

    If investors expect the Fed to keep its short-term rate high, or raise it, long-term yields rise too.

  3. A strong economy

    When jobs and growth are strong, investors move money into stocks and other things, so fewer people want safe bonds, and yields rise.

  4. Government borrowing

    When the government borrows a lot, it has to sell more bonds. More bonds for sale means it has to offer a higher yield to attract buyers.

The super simple version

“The 10-year yield goes up when investors expect inflation to stay high, so they want more interest to lend their money. Mortgage rates follow it.”

The whole chain in one line

InflationInvestors want more return10-year yield goes upMortgage rates go up

The question everyone asks next

Why can mortgage rates go up even after the Fed cuts?

What the Fed sets

The federal funds rate

A short-term rate that banks charge each other for overnight loans.2

What mortgage rates follow

The 10-year Treasury yield

It moves with what investors expect over the next ten years: inflation, growth and future Fed moves.1

So a Fed cut lowers short-term rates, but if investors still expect inflation to stay hot, the 10-year yield can rise anyway, and mortgage rates rise with it.1

Questions

What people search about mortgage rates going up.

Why are mortgage rates going up?

When prices keep going up (inflation), the people who lend money for mortgages want to earn more to make it worth their while. So they charge more interest, and rates go up.

Why do mortgage rates go up with inflation?

Inflation means the money a lender gets back later buys less. To make up for that, bond investors want a higher return, so they pay less for bonds and yields rise. Mortgage rates follow those yields.

Do mortgage rates follow the 10-year Treasury yield?

Closely, yes. The 30-year mortgage rate is priced off the 10-year Treasury yield, plus a spread for the extra risk in mortgage bonds. When that yield moves, mortgage rates usually move the same way.1

Why are mortgage rates going up after the Fed cut rates?

The Fed sets a short-term rate for overnight loans between banks. Mortgage rates follow the 10-year Treasury yield, which moves with what investors expect about inflation and the economy. If they expect inflation to stay hot, that yield and mortgage rates can rise even after a Fed cut.1

Your question

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