How is your mortgage rate determined?
The Federal Reserve is partly to blame, but so are various personal financial factors


As any potential homebuyer knows all too well, mortgage rates have remained stubbornly high for quite some time now. The Federal Reserve is partly to blame, as it is not planning to lower the Fed rate until inflation cools off, which in turn influences mortgage rates.
However, to be fair, "the Fed isn't the only factor influencing mortgage costs," said The Wall Street Journal. A multitude of personal financial factors also help determine what mortgage rate you'll get — particularly in this rate environment. For instance, "the payoff for having a great credit score has grown as rates have risen," as have the savings you may reap from shopping around with different lenders, said the Journal.
Here's what to know about what goes into determining a mortgage rate, so you stand a better chance of scoring the best rate possible.
The Week
Escape your echo chamber. Get the facts behind the news, plus analysis from multiple perspectives.

Sign up for The Week's Free Newsletters
From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.
From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.
What personal factors affect your mortgage rate?
So what goes into your mortgage rate that's within your control? Here are some of the major factors that lenders weigh when deciding what rate to offer you:
Credit score: "The lowest mortgage rates go to borrowers with credit scores of 740 or higher," said NerdWallet, while rates get "a little higher for borrowers with credit scores of 700 to 739" and "even higher" for those with scores "from 620 to 699."
Debt-to-income ratio: A debt-to-income (DTI) ratio is "your monthly debt obligations divided by your gross monthly income," said CNN Underscored. If you have one of "36% or lower," that "will help you unlock the lowest mortgage rates because it demonstrates your ability to manage debt responsibly."
Loan-to-value ratio: The loan-to-value (LTV) ratio "compares your loan amount to the property's price," and a lower one "typically results in a lower mortgage rate," said Bankrate. How much of a down payment you make will impact your LTV ratio.
A free daily email with the biggest news stories of the day – and the best features from TheWeek.com
Property type and location: What type of property you're taking out a mortgage on and where it is located also impacts mortgage rates. For instance, "interest rates are usually lowest on primary residences" compared to a second home or investment property, said Rocket Mortgage. Further, said CNN Underscored, "rates can also differ depending on your state."
How does the market impact mortgage rates?
Of course, your mortgage rate isn't entirely within your control — rather, "the overall level of mortgage rates is set by market forces," said NerdWallet. Specifically, the following factors affect how high — or low — mortgage rates are at a given time:
The Federal Reserve: While the Fed does not set mortgage rates, its actions do have an impact on them. "The Fed can raise or lower short-term interest rates, which indirectly affects mortgage rates. When the Fed raises rates, it becomes more expensive for banks and lenders to borrow money; this translates to increased rates for borrowers. When the Fed lowers rates, it becomes cheaper to borrow money, resulting in lower mortgage rates," Scott Bridges, the chief consumer direct production officer at national mortgage lender Pennymac, said to Bankrate.
Inflation: Mortgage rates also tend to move in tandem with inflation. "When inflation increases, interest rates increase so they can keep up with the value of the dollar," said Rocket Mortgage. Meanwhile, "if inflation decreases, mortgage rates drop."
Financial markets: A number of financial markets also influence mortgage rates, including "the performance of T-bonds and mortgage-backed securities," said Bankrate.
The overall economy: Last but certainly not least, the state of the economy impacts mortgage rates. Rates "tend to rise when the outlook is for fast economic growth, higher inflation and a low unemployment rate," said NerdWallet, and they "tend to fall when the economy is slowing down, inflation is falling and the unemployment rate is rising."
How can you get the best mortgage rate?
One way to ensure you get the lowest rate is to compare offers from different lenders. This can end up saving you a surprising amount, said the Journal: "Give your financial information to two different lenders, and you may receive very different quotes that mean saving or losing tens of thousands of dollars."
You can also save by making the most of the factors in your control, such as by working to boost your credit score and saving for a more sizable down payment.
Becca Stanek has worked as an editor and writer in the personal finance space since 2017. She previously served as a deputy editor and later a managing editor overseeing investing and savings content at LendingTree and as an editor at the financial startup SmartAsset, where she focused on retirement- and financial-adviser-related content. Before that, Becca was a staff writer at The Week, primarily contributing to Speed Reads.
-
Taking aim at Venezuela’s autocrat
Feature The Trump administration is ramping up military pressure on Nicolás Maduro. Is he a threat to the U.S.?
-
Comey indictment: Is the justice system broken?
Feature U.S. attorney Lindsey Halligan has indicted former FBI Director James Comey on charges of lying and obstructing Congress
-
Government shuts down amid partisan deadlock
Feature As Democrats and Republicans clash over health care and spending, the shutdown leaves 750,000 federal workers in limbo
-
When should you use a personal loan vs. a credit card?
The Explainer Determine whether you need a lump sum upfront or a borrowing limit
-
How will Fed rate cuts affect the housing market?
the explainer An anticipated series of Federal Reserve cuts could impact mortgage rates
-
What to know about investing in ETFs
The Explainer Exchange-traded funds can be a great choice for beginners
-
How to ditch ‘buy now, pay later’ debt
the explainer Recent changes mean BNPL will soon affect your credit score
-
The biggest changes to Social Security coming in 2026
The Explainer They will include an annual cost of living adjustment and a higher wage cap
-
Is duty-free shopping worth it?
the explainer How to determine whether you are actually getting a good deal
-
What's a bridge loan and how could it make buying your next home possible?
The Explainer This type of loan has both pros and cons
-
How to put student loan payments on pause
The Explainer If you are starting to worry about missing payments, deferment and forbearance can help