There’s a lot of noise about mortgage rates. The Fed this… Inflation that… Recession fears… It’s impossibly confusing sometimes. So let’s break this down in the simplest way possible.

1. Mortgage rates are mostly tied to the 10-Year U.S. Treasury Bond

Even though most mortgages are written as 30-year loans, the average homeowner keeps their mortgage for about 10 years before selling or refinancing.

So investors compare:

  • “Should I lend my money to a homeowner for about 10 years?”
  • Or “Should I lend my money to the U.S. government for 10 years?”

Because the U.S. government has never defaulted on its debt, lending to it is considered one of the safest investments in the world. That’s why the 10-year Treasury yield becomes the main benchmark for mortgage rates.

This explanation is summarized from the December 1, 2025 episode of the BiggerPockets Podcast with Dave Meyer. Episode: Mortgage Rate Predictions – Dec. 1, 2025

2. What Is a “Spread”?

Investors are not going to lend to a homeowner at the same rate they lend to the U.S. government. Homeowners are riskier. So they add what’s called a spread.

Historically, the spread between the 10-year Treasury and mortgage rates averages about 1.5 to 2.5%.

Example:

  • 10-Year Treasury Yield = 4%
  • Average Spread = 2%
  • Mortgage Rate ≈ 6%

That’s essentially how mortgage rates are set.

What Moves the 10-Year Bond?

According to the BiggerPockets breakdown, two major forces move bond yields (which then move mortgage rates):

1. Inflation

2. Recession Risk

Here’s the simple version:

When Inflation Goes Up → Mortgage Rates Tend to Go Up

Why?

If an investor earns 4% on a bond but inflation is 5%, they’re actually losing money in purchasing power.

So investors demand higher yields to protect themselves.

Higher bond yields → Higher mortgage rates.

When Recession Risk Goes Up → Mortgage Rates Tend to Go Down

When the economy looks shaky, investors move money into safer assets — like U.S. bonds.

More demand for bonds allows the government to pay lower yields.

Lower bond yields → Lower mortgage rates.

Simple Cheat Sheet

  • Inflation ↑ → Bond yields ↑ → Mortgage rates ↑
  • Recession fears ↑ → Bond yields ↓ → Mortgage rates ↓

That’s the core relationship.

What About The Fed and Rate Cuts?

The Federal Reserve controls the Federal Funds Rate, which directly affects:

  • Credit cards
  • Short-term loans
  • Home equity lines of credit (HELOCs)
  • Adjustable-rate products

It does not directly control 30-year fixed mortgage rates.

However…

If the Fed cuts rates because inflation is cooling or the economy is slowing, that can indirectly influence bond markets — which then influence mortgage rates.

So Fed cuts matter — just not in the direct way most headlines suggest.

Some Reassurance

Conventional mortgage rates today are meaningfully lower than they were this time last year. That’s welcome news for buyers and homeowners considering refinancing.

That said — no one (and I mean no one) can predict exactly where rates will be next month or next year.

Many well-informed analysts, including those discussed on the BiggerPockets episode, believe rates may not move dramatically over the next year — but of course, markets can always surprise us.