Where will mortgage rates go in 2026 and beyond?
/Where will mortgage rates go in 2026 and beyond?
By: Geoffrey Regent
If you were like most people, you were bombarded by headlines, video clips, and audio about the Federal Reserve cutting interest rates over the last several months. Many people assume that mortgage rates will fall right in line with the rates set by the Fed. Mortgage rates are a lot more complex than that. Fixed rate mortgages are connected more so to the long-term market than the Federal Reserve’s short-term rates. Homebuyers who are shopping for a home or homeowners shopping for a mortgage refinance can benefit from this because it explains why the rates sometimes increase even though the Federal Reserve lowers rates.
The 10 Year Treasury Note: The backbone of mortgages
A common misconception is that the Federal Reserve sets mortgage rates. The truth is, lenders price mortgages by referring to the yields provided in the 10 Year Treasury Note. You might be asking yourself, “Why would lenders use the 10 Year Treasury Note if most homebuyers opt for 30-year fixed rate mortgage?” The truth is, mosthomeowners obtain a 30-year mortgage, but either refinance or sell their house long before they reach 30 years. The National Association of Realtors (NAR) recently published information from a study in November 2025 that noted that the average homeowner is staying in their house for approximately eleven years. Some other major mortgage lenders utilize the bond market as a benchmark because bonds are generally good indicators of potential market and economic growth or decline.
What’s the “Mortgage Spread” and How Does it Affect Rates?
Mortgage interest rates are not exactly the same as a 10-year treasury yield rate because the lenders must add in something known as the “Spread.” The spread is comprised of the primary market spread and secondary market spread. The primary market spread is also known as the lender’s margin. This covers mortgage or origination costs, servicing, administrative fees, and the profit. The secondary market spread covers the difference between something called mortgage-backed securities and the 10-year treasury. There is obviously some risk involved with funding mortgages, as we’ve seen in the past with foreclosures and economic downturns. The spread is usually 1.5 to 2 percentage points above the 10 Year Treasury Note. That percentage could fluctuate a little bit, depending on market conditions and the overall strength of the economy.
Why Aren’t Mortgages Tied to the Federal Reserve Rates?
The Federal Reserve controls short term, federal fund rate rates. These rates help lenders set rates for different types of credit like credit cards, personal loans, auto loans, etc. Banks also set their savings and certificate of deposit rates off of the Federal Reserve rates.
There are a number of other economic factors that can help determine long-term borrowing costs for loan products like mortgages. Inflation expectations have a major effect on mortgage rates. Higher yields on long-term investments are required if investors believe that there will be high inflation in the coming years. Growth or decline in the economy will also affect rates. Government borrowing can increase the supply of treasury notes as well. Mortgage-backed securities also play a role in this because mortgages are usually sold on a secondary market after the real estate purchase takes place. Nowadays, it is almost unheard of that a lender holds a mortgage for the life of the loan. Instead, a number of mortgages are packaged together and sold to investors. Investors then take on the risk if the borrowers failed to pay their mortgages. Therefore, investors want to buy less risky mortgages. Purchasing higher risk mortgages comes at a premium. That is when you see higher rates; because lenders need to build in protect protection in case the borrower defaults (I.e. stops paying their loan).
What Does the Recent Data Show for 2026 and Beyond?
Rates have fallen throughout 2025 and are hovering a little bit above 6% for a typical 30-year fixed rate conventional mortgage (according to Freddie Mac as of December 18, 2025). Many people have been asking the same question repeatedly, “When will we be seeing lower rates?” Although there has been a decrease in rates compared to the previous two years, it is important to understand that there are a number of factors that play a role in the rates. Looking at 2026 and beyond, borrowers and perspective borrowers should monitor the following variables: Inflation, growth of the economy, the United States fiscal policy (that includes deficits and spending), the United States government debt, global finances (because foreign investors purchase debt), and whether or not investors are still interested in mortgage-backed securities.
Borrowers and potential homebuyers should watch the 10-year treasury yield rather than the Federal Reserve’s rate changes. That will help give a clearer picture of where mortgage rates will go in 2026. Remember, it is very difficult to “time the market.” Homebuyers also need to be aware that a lower interest rate may not necessarily translate into a lower mortgage payment. Home appreciation rates may have a more profound impact on the overall cost of a house in comparison to an interest rate. For example, if a house value appreciates 5% in one year, a reduction in an interest rate of an eighth of a percent or even quarter of a percent, may not necessarily translate into a lower mortgage payment, depending on the price of the house. It is always best to consult with a trusted professional before moving forward with such an important decision. Need help? I am here to answer my fellow first responders’ questions.
Geoffrey J. Rejent is a Municipal Police Sergeant in New Jersey. He is currently in his 23rdd year of service and is assigned to Special Operations. He also currently serves as a Drug Recognition Expert. He holds a Bachelor’s Degree from Marist College and a Master’s Degree in Administrative Science from Fairleigh Dickinson University. He is also a Mortgage Loan Originator (NMLS 2624041) with One Real Mortgage (198414). You can reach Geoffrey J. Rejent by email at Geoffrey.Rejent@onerealmortgage.com, by LinkedIn at Geoffrey Rejent, Facebook at Geoffrey J. Rejent – For All of Your Mortgage Needs, Instagram at Geoffrey.rejent_mlo, and Tiktok at @geoffrey.rejent_mlo.
