Currently, economists expect the Federal Reserve to move its benchmark rate higher to contain inflation. However, action by the Fed isn’t the sole driver of mortgage rates. The Federal Reserve hasn’t increased its rate since July 26, 2023. Since then, the Fed actually reduced its rate on several occasions, with the last dip recorded December 10, 2025. The Fed has taken a “wait-and-see” stance since then, but inaction by the Fed does not stop mortgage interest rates from rising.

It comes down to risks, returns, and where investors are most willing to put their money. Essentially, mortgage-backed securities compete with U.S. Treasury bonds in the financial markets.

Treasury bonds are long-term, fixed-interest securities issued by the U.S. government. They are considered low-risk investments, providing investors with regular interest payments until maturity. These are marketable securities available to the public.

Mortgage-backed securities are investment products created by pooling individual home loans together. Agencies like Freddie Mac and Ginne Mae, along with banks and financial institutions, sell shares of those pools to investors on the secondary market.

But a 30-year mortgage isn’t always a 30-year investment product. Homeowners typically refinance, or sell their homes and pay off the mortgage, well before the 30-year mark. On average, a 30-year mortgage has a practical lifespan of about 10 years. This is why 30-year mortgage securities, and interest rates themselves, are influenced by 10-year Treasury bonds.

However, homeowners who do not sell or refinance can sit on their mortgages for up to 30 years. This can mean a low return for investors over a long period of time. And unlike bonds backed by the U.S. government, where taxpayers serve as the backstop, mortgage borrowers can default on their loans. Therefore, mortgage securities hold more potential risk for investors.

To answer the difference in risk, there is a spread between Treasury yields and mortgage-backed securities. The spread is there to keep mortgage-backed securities attractive to investors. That spread usually sits around 1.5 to 2.0 percentage points, though it can widen when markets get jittery.

If you’re wondering how the Federal Reserve fits in, here’s another way to look at it:

The Federal Reserve does not set mortgage rates directly, but it indirectly influences them by taking rate action to address risks to the economy. Investors can react to the Fed’s guidance, or react to the lack of it, causing movement in the financial markets.

The financial markets determine the return investors will accept for tying up their money 10 years or more.

This is a very simplified explanation. This information is for illustrative purposes only, and is not presented as financial advice.

You can follow Treasury pricing on TreasuryDirect.gov.

You can follow the weekly 30-year Conventional mortgage rate averages on FreddieMac.com.

When you are ready to find a mortgage, talk to us first! We can refer you to local, reputable lenders in the Columbus area who will explain your options. When you become our Buyer-Client, we can help you compare your mortgage offers and help you find the best value! Learn more in our free e-book, “How to Buy a Home like a Pro.”

As Exclusive Buyer’s Brokers, we serve your best interests at all times! Unlike real estate agents and brokerages who represent sellers, as an Exclusive Buyer’s Broker, we only represent you, the buyer, getting you the best price and terms with no conflict of interest, at all times.

Understanding this distinction could literally save you thousands of dollars not only on the purchase price and terms, but also on seller concessions and home inspection issues, whether you are a first-time homebuyer or an experienced homeowner!

Contact us with your home buying questions! Remember, we are with you every step of the way…all the way home!

Andrew Show
Exclusive Buyer’s Broker, CEBA-M, MCNE, CSP, PSA,e-PRO, CREM, ABRM, AHWD
Buyer’s Resource Realty Services www.BuyersHome.com
Serving Metro Columbus, Ohio with Exclusive Buyer’s Agents
7100 North High Street, Suite 204, Worthington, Ohio 43085
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