How Exactly Are Mortgage Rates Determined?

Most people don’t think too much about how mortgage rates are determined until they are ready to buy or refinance a home. Additionally, the calculation of a borrower’s specific mortgage rate likely depends on more information that may immediately come to mind.  Several factors affect mortgage rates. This includes external variables such as consumer spending and Treasury yields, as well as personal components like credit score and loan term.   

External Factors Affecting How Mortgage Rates Are Determined

The Economy 

When economic factors are strong, individuals will likely see higher rates. Conversely, slowing economies might lead to lower interest rates, if even over the short term, in an attempt to boost job growth and consumer spending. Additionally, employment, inflation, and stock and bond markets all can affect the economy and ultimately impact mortgage rates.   

Federal Reserve 

The Federal Reserve often referred to as “the Fed”, is composed of regional banks across the nation that work to establish and observe monetary policy in the United States.  Part of the Fed’s mission is to maintain a stable inflation rate. They do this by shifting the Federal Funds Rate, which guides how banks borrow money from each other overnight and serves as a benchmark for additional rate-based markets. This helps control the amount and rate at which banks borrow from each other, thus effectively controlling the nation’s money supply.  It’s important to note the Fed Funds rate impacts bank accounts, credit cards, and certain types of consumer loans but does not directly or immediately affect mortgage interest rates. Fluctuations in mortgage markets when the Fed Funds rate changes are often accounted for before the change is made and don’t necessarily move in the same direction. View Spire mortgage rates to see if now is a good time to buy.   

Personal Factors Affecting Mortgage Rates

While economic variables are impossible to control, there are personal factors that also specifically  affect how mortgage rates are determined. These include:  

Credit Score 

Individuals with higher credit scores are generally perceived to exhibit less risk, and thus a lower likelihood of default if offered a loan. As a result, a higher credit score usually correlates with a lower mortgage interest rate. According to the FICO model, “very good” scores range from 740-799 and scores over 800 are considered “exceptional”.  

Down Payment 

Larger down payments equate to a higher stake in the subject property, another sign of decreased risk of default. That said, depending on the down payment amount or loan type, mortgage insurance may be necessary.  

Type of Mortgage

Variance can be expected when comparing Conventional, FHA, VA, or Jumbo mortgage rates. These differences depend on the loan program as well as the original source. Government-backed programs may have lower rates, while Conventional options may allow for a lower down payment.

Other Factors

  •     Mortgage length: Shorter terms feature lower rates
  •     Debt-to-Income ratio: A lower DTI parallels a better interest rate
Property Type: Primary homes are deemed less risky than secondary residences or investment properties. While it’s hard to predict or control external factors, there are several easy steps to take personally to maximize your mortgage interest rate options. Our team of professionals at Spire Financial Services is here to help you determine the best mortgage option for your specific needs.

A Lending Hand for Financing Home Mortgages

Spire Financial (A Division of AmeriFirst Financial Inc.) brings lending expertise to you. All of our loan officers offer personalized communication for every client, guiding them through the process. We can show you ways to maximize your finances and unlock future opportunities. Spire Financial keeps you in control of refinancing, debt consolidation, and home equity. Together, we can achieve your financial goals.



Spire Financial, a division of AmeriFirst Financial, Inc., 1550 E. McKellips Road, Suite 117, Mesa, AZ 85203 (NMLS # 145368). 303-595-0110. © 2022. All Rights Reserved. This is not an offer to enter into an agreement. Not all customers will qualify. Information, rates, and programs are subject to change without prior notice. All products are subject to credit and property approval. Not all products are available in all states or for all loan amounts. Other restrictions and limitations apply. AmeriFirst Financial, Inc. is an independent mortgage lender and is not affiliated with the Department of Housing and Urban Development or the Federal Housing Administration. Not intended for legal or financial advice. Visit for all state licenses information. Visit NMLS Consumer Access at

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