Mortgage rates are one of the biggest factors in how much house you can afford, yet they're driven by forces most buyers don't fully understand. You don't need to be an economist to make good decisions — but knowing the basics gives you a real edge.
What Mortgage Rates Actually Are
A mortgage rate is the interest a lender charges you for borrowing money to buy a home. It's expressed as an annual percentage, and even small differences add up to significant money over the life of a loan. Rates are not set by individual lenders in isolation — they're shaped by much larger market forces.
What Drives Rate Changes
Several factors influence where rates land on any given day:
- Bond markets — mortgage rates tend to move in line with yields on 10-year Treasury bonds. When bond yields rise, mortgage rates typically follow.
- Inflation — higher inflation generally pushes rates up, because lenders need a return that outpaces rising prices.
- Federal Reserve policy — while the Fed doesn't directly set mortgage rates, its decisions about the federal funds rate affect the broader cost of borrowing, which ripples through to mortgage pricing.
- Economic conditions — strong job growth and consumer spending can push rates higher; signs of slowdown often bring them down.
Fixed vs. Adjustable: A Key Decision
Fixed-rate mortgages lock your rate for the life of the loan. Your payment stays the same whether rates go up or down after you close. This predictability is valuable if you plan to stay in the home for many years.
Adjustable-rate mortgages (ARMs) typically start at a lower rate that's fixed for an initial period (often five or seven years), then adjusts periodically based on a market index. ARMs can make sense if you plan to sell or refinance before the adjustment period begins — but they carry more uncertainty over the long term.
Locking Your Rate
Once you're under contract on a home, your lender can offer you a rate lock — a commitment to hold a specific rate for a defined window (commonly 30 to 60 days). If rates rise during that period, you're protected. Locking at the right moment is part strategy, part timing.
What You Can't Control vs. What You Can
You can't control where rates go. But you can control your credit score, your loan-to-value ratio, your loan type, and how prepared your file is when you apply. Those factors directly affect the rate you're offered.
Talk to First Look Home Loans about rate options for your situation — we'll help you understand the trade-offs and find a loan structure that fits.
