Note that Fortune reviewed Optimal Blue’s latest available data on Aug. 28, with the numbers reflecting home loans locked in as of Aug. 27.
If it feels as though 30-year mortgage rates have been stuck on the verge of 7% for an extended period, that’s not too far off. Many observers anticipated that rates would soften when the Federal Reserve started reducing the federal funds rate last September, but there was no sustained decrease in mortgage rates. There was a short-lived dip preceding the September Fed meeting, but rates rapidly climbed afterward.
Absent another major crisis, experts agree we won’t have mortgage rates in the 2% to 3% range in our lifetimes. Nevertheless, rates around the 6% mark are entirely possible if the U.S. manages to tame inflation and lenders feel optimistic about the economic prospects.
In fact, rates had a modest decline at the end of February, dropping nearer to the 6.5% mark than had been seen for some time. There was even a brief point in early April where rates dipped below 6.5%, but they rose immediately afterward.
At present, with uncertainty as to the extent to which President Donald Trump will pursue policies such as tariffs and deportations, some observers worry the labor market could constrict and inflation could resurface. Against this backdrop, U.S. homebuyers face high mortgage rates—although some can still find options for making their purchase more manageable, like negotiating rate buydowns with a builder when purchasing newly constructed property.
While economic conditions are beyond your control, your financial profile as an applicant also has a substantial impact on the mortgage rate you’re offered. With that in mind, aim to do the following:
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An important bit of context for the discussion about high mortgage rates is that today’s rates around 7% feel high because of the recent memory of rates between 2% and 3%. Those rates were possible due to unprecedented government action aimed at preventing recession as the country grappled with a global pandemic.
However, under more typical economic conditions, experts agree we’re unlikely to see such exceptionally low interest rates again. Historically, rates in the vicinity of 7% are not unusually high.
Consider this St. Louis Fed (FRED) chart tracking Freddie Mac data on the 30-year, fixed-rate mortgage average. From the 1970s through the 1990s, such rates were more or less the norm, with a significant spike in the early 1980s. In fact, September, October, and November of 1981 all saw mortgage interest rates exceeding 18%.
Nevertheless, this historical perspective offers little consolation to homeowners who may want to move but are locked in with a once-in-a-lifetime low interest rate. Such situations are common enough in the current market that low pandemic-era rates keeping homeowners from moving when they otherwise would have become known as the “golden handcuffs.”
The U.S. economy may well be the single largest driver of mortgage rates. When lenders fear inflation, they can raise rates to protect their long-term profits.
Plus, the national debt is another significant factor. When the government has to borrow large sums to cover what it spends, that can drive interest rates higher.
Demand for home loans is key too. If few people are borrowing, lenders might lower rates to attract business. But if loans are in high demand, they might raise rates to cover their costs.
In addition, the Federal Reserve’s actions play a role. The Fed can sway rates for mortgages and other financial products by changing the federal funds rate and by managing its balance sheet.
The federal funds rate gets a lot of media attention. When it changes, mortgage rates often follow suit. But remember, the Fed doesn’t set mortgage rates directly, and they don’t always move in perfect sync with the fed funds rate.
Perhaps even more importantly, the Fed influences rates through its balance sheet. In tough times, it can buy assets like mortgage-backed securities (MBS) to boost the economy.
But recently, the Fed has been shrinking its balance sheet, choosing not to replace assets as they mature. This tends to push interest rates up. So while everyone focuses on cuts or hikes to the fed funds rate, what the central bank does with its balance sheet might be even more important for your mortgage rate.
Comparing rates on different types of loans and shopping around with various lenders are both essential steps in obtaining the best mortgage for your situation.
If your credit is excellent, opting for a conventional mortgage might be the ideal choice for you. However, if your score is below 600, an FHA loan may give you an opportunity that a conventional loan would not.
When it comes to exploring options with different banks, credit unions, and online lenders, it can make a significant difference in your overall costs. Freddie Mac research indicates that in a market with high interest rates, homebuyers may be able to save $600 to $1,200 annually if they apply with multiple mortgage lenders.
