Mortgage rates are based on two layers working together: broad economic forces that set a baseline every lender starts from, and personal financial details that push your individual rate above or below that baseline. The economic layer includes inflation, Federal Reserve policy, and the bond market, especially the 10-year Treasury yield. The personal layer includes your credit score, down payment, debt-to-income ratio, loan type, and what you plan to do with the property. As of mid-March 2026, the average 30-year fixed sits near 6.11% and the 15-year near 5.50%,1Freddie Mac. Mortgage Rates – Primary Mortgage Market Survey but the rate you’re actually offered can land well above or below those averages depending on how the personal factors play out.
The Economic Baseline
Inflation drives the floor. When prices rise, lenders need higher interest to make sure the dollars repaid over 15 or 30 years still hold real value. Every rate offered today reflects what lenders expect inflation to do over the life of the loan.
The Federal Reserve shapes the environment by adjusting the federal funds rate, the interest banks charge each other for overnight lending.2Federal Reserve Board. Economy at a Glance – Policy Rate The Federal Reserve Act charges the Fed with promoting stable prices and maximum employment, so rate decisions reflect where the committee thinks the economy is heading.3Federal Reserve Board. Federal Reserve Act When the target goes up, borrowing costs across the system tend to follow. But the federal funds rate doesn’t directly set mortgage rates. Short-term consumer products like credit cards and home equity lines track it closely; fixed mortgages respond more to the bond market.
The Bond Market Connection
Most residential mortgages aren’t held by the bank that funded them. Lenders sell loans to entities like Freddie Mac, which bundle thousands of similar mortgages into mortgage-backed securities and sell those to investors.4Freddie Mac. Understanding Mortgage-Backed Securities What investors will pay for those securities is what actually sets mortgage rates.
Investors compare mortgage-backed securities to 10-year Treasury bonds, since both are long-term, relatively safe assets competing for the same dollars. The 10-year Treasury yield acts as a floor: if Treasuries pay 4.3%, mortgage securities need to pay more to attract buyers, because mortgages carry extra risk. Historically, the spread between 30-year fixed mortgage rates and the 10-year Treasury has averaged roughly 1.5 to 2 percentage points, widening in economic stress and narrowing in calmer periods. In mid-March 2026, with Treasuries near 4.3% and 30-year mortgages near 6.1%, the spread sits at about 1.8 points, within normal range.1Freddie Mac. Mortgage Rates – Primary Mortgage Market Survey Movement in Treasury yields foreshadows where mortgage rates are heading better than any Fed announcement alone.
Credit Score
Once the market sets the baseline, lenders adjust your rate based on how risky you look. Your FICO score, running from 300 to 850, is the single most influential personal factor. Higher scores signal lower default risk and earn lower rates. Based on February 2026 data for 30-year conventional loans, the gap between a 620 score and a 780 score was roughly a full percentage point: about 7.17% versus 6.20%.
Scores above 760 generally qualify for the best pricing, and additional points beyond that don’t move the rate much. Below 620, many conventional lenders won’t approve at all. Between 620 and 680, you’ll get approved but pay noticeably more each month.
Loan-Level Price Adjustments
The mechanism translating credit scores into rate differences is called a loan-level price adjustment, or LLPA. These are percentage-based fees set by Fannie Mae and Freddie Mac, added to the cost of a loan based on credit score, down payment size, property type, and other factors. LLPAs stack, so a borrower with a 640 score and a small down payment faces a steeper adjustment than someone with the same score putting 30% down. According to Fannie Mae’s current matrix, a borrower in the 640–659 range could face LLPAs from 0% to 2.5% depending on the loan-to-value ratio.5Fannie Mae. LLPA Matrix These adjustments either raise your interest rate directly or get charged as upfront fees at closing.
Down Payment and Loan-to-Value
Your loan-to-value ratio, the loan amount divided by the property’s appraised value, is another lever that directly moves your rate. A larger down payment means a lower LTV, which lenders reward with better pricing because they have a bigger equity cushion if you default.6Consumer Financial Protection Bureau. What Is a Loan-to-Value Ratio and How Does It Relate to My Costs The Fannie Mae LLPA matrix shows this clearly: a borrower with a 720 score and 25% down faces a much smaller adjustment than the same borrower with only 5% down.5Fannie Mae. LLPA Matrix
Private Mortgage Insurance
On conventional loans, putting down less than 20% triggers a requirement for private mortgage insurance. PMI protects the lender if you default and gets added to your monthly payment. Annual premiums typically range from about 0.46% to 1.50% of the original loan amount, with your credit score determining where you land. A borrower with a 760 score might pay 0.46%, while someone at 620 could pay 1.50%. On a $350,000 loan, that’s the difference between roughly $135 and $440 per month. Even if the base interest rate is the same, PMI effectively raises what you pay to borrow.
Debt-to-Income and Employment
Your credit score tells lenders how you’ve handled past debt. Your debt-to-income ratio tells them whether you can handle this new debt. Lenders add up your monthly obligations, including the proposed mortgage, and divide by your gross monthly income. Lower ratios earn better terms.
The 43% DTI threshold gets a lot of attention because it used to be a hard cutoff for “qualified mortgages” under Dodd-Frank’s ability-to-repay rules. The CFPB replaced that rigid cap in 2021 with a pricing-based test, so it’s no longer a bright-line rule.7Consumer Financial Protection Bureau. 12 CFR Part 1026 Regulation Z – 1026.43 Minimum Standards for Transactions Secured by a Dwelling Most lenders still treat 43% as a practical ceiling for competitive rates. Above that, expect higher rates, smaller loan amounts, or both. Above 50%, most conventional options close.
Employment stability rounds out the picture. Fannie Mae’s underwriting guidelines generally require a two-year history of earnings to establish that income is likely to continue.8Fannie Mae. Underwriting Factors and Documentation for a Self-Employed Borrower Recent career changers aren’t automatically disqualified, but gaps and frequent switches can prompt a risk premium or extra documentation.
Loan Type and Term
15-Year Versus 30-Year Fixed
A 15-year fixed almost always carries a lower rate than a 30-year fixed because the lender’s exposure to inflation and market shifts is half as long. As of March 2026, that gap is about 0.6 percentage points, 5.50% versus 6.11%.1Freddie Mac. Mortgage Rates – Primary Mortgage Market Survey The lower rate plus faster payoff means dramatically less total interest. The trade-off is a larger monthly payment.
Adjustable-Rate Mortgages
Adjustable-rate mortgages offer a fixed introductory rate for 3, 5, 7, or 10 years, typically lower than a 30-year fixed. After the intro period, the rate resets annually based on a market index. FHA-insured ARMs cap annual increases at one to two percentage points and lifetime increases at five to six points above the initial rate, depending on the product.9U.S. Department of Housing and Urban Development. FHA Adjustable Rate Mortgage ARMs work if you’re confident you’ll sell or refinance before the intro period ends. Holding one through multiple resets usually costs more than a fixed loan would have.
Government-Backed Loans
VA loans, backed by the Department of Veterans Affairs, often carry the lowest rates because the government guarantee substantially reduces lender risk. They also don’t require a down payment or private mortgage insurance.10Veterans Benefits Administration. VA Home Loans
FHA loans are more accessible to borrowers with lower credit scores, and base interest rates can be competitive. But FHA requires both an upfront mortgage insurance premium of 1.75% of the loan amount and an annual premium of 0.80% to 1.05% for most borrowers, depending on loan size and down payment.11U.S. Department of Housing and Urban Development. Appendix 1.0 – Mortgage Insurance Premiums On a $300,000 loan, the upfront premium alone adds $5,250. The annual premium stays for the life of the loan if you put less than 10% down. Once you account for those costs, the effective rate on an FHA loan is often higher than what a strong-credit borrower would pay on a conventional product.
Property Use
What you’re doing with the property matters. Primary residences get the best rates because owner-occupants are statistically the least likely to stop paying. Investment properties carry higher rates, typically 0.25% to 0.875% above a primary home, because landlords in financial trouble are more likely to walk away from a rental than from where they live. Second homes fall between the two. These occupancy adjustments flow through the same LLPA system, stacking on top of credit score and LTV adjustments.5Fannie Mae. LLPA Matrix
Points, Credits, and Buydowns
You can adjust your rate at closing by paying discount points or accepting lender credits. One point equals 1% of the loan amount and buys a lower rate. On a $300,000 loan, one point costs $3,000. The exact reduction varies, but paying a fraction of a point can shave 0.125% or more off your rate.12Consumer Financial Protection Bureau. How Should I Use Lender Credits and Points (Also Called Discount Points) The break-even, upfront cost divided by monthly savings, typically lands in the four-to-seven-year range. Selling or refinancing before then makes points a losing bet.
Lender credits work in reverse. The lender covers some closing costs in exchange for a higher rate. You pay less upfront but more every month for the life of the loan.12Consumer Financial Protection Bureau. How Should I Use Lender Credits and Points (Also Called Discount Points) Useful if you’re short on cash at closing or don’t expect to keep the mortgage long.
A temporary buydown is different. A lump sum deposited into a buydown account subsidizes your payments during the first few years, but your note rate never changes. A 3-2-1 buydown, for example, cuts the effective rate by 3 percentage points in year one, 2 in year two, and 1 in year three, after which you pay the full note rate.13Fannie Mae. Overview of Temporary Buydown You still have to qualify at the full rate. Sellers sometimes fund these as a concession in slower markets.
Why Two Lenders Quote Different Rates
Same borrower, same day, different rates. Lenders price the same profile differently based on their own cost structures, risk appetite, and how aggressively they want new business. The Consumer Financial Protection Bureau estimates that homebuyers who request quotes from multiple lenders can save $600 to $1,200 per year.14Consumer Financial Protection Bureau. Request and Review Multiple Loan Estimates Over 30 years, that’s tens of thousands of dollars.
Mortgage credit inquiries made within a 14- to 45-day window (depending on the scoring model) count as a single inquiry, so shopping hard won’t damage your score. Pull at least three Loan Estimates, compare annual percentage rates rather than just interest rates, and look closely at how each lender handles points and credits. Two lenders quoting the “same” rate can have very different total costs once you see the full picture.