Mortgage rates edged down on Thursday, registering another 10-month low, as they continued their uneven downward trend ahead of a widely anticipated Federal Reserve rate cut in the coming weeks.
The average rate on 30-year fixed home loans was 6.56% for the week ending Aug. 28, down from 6.58% the previous week, according to Freddie Mac. Rates averaged 6.35% during the same period in 2024.
“Mortgage rates are at a 10-month low,” says Sam Khater, Freddie Mac’s chief economist. “Purchase demand continues to rise on the back of lower rates and solid economic growth. Though many potential homebuyers still face affordability challenges, consistently lower rates may provide them with the impetus to enter the market.”
After peaking in May, mortgage rates have generally pulled back, offering existing home sales a modest boost in July, but new homes sales have slowed, says Realtor.com® Chief Economist Danielle Hale.
Meanwhile, consumer buying power has steadily eroded since 2019, as mortgage rates remain stuck in the upper 6% range.
The median-income family nationwide saw a nearly $30,000 drop in homebuying power this summer compared to 2019.
“This is one of several frustrations for participants in what’s been a cruel summer for the housing market,” says Hale.
Looking ahead, Fed Chair Jerome Powell has set the stage for a benchmark rate cut, having faced months of mounting pressure from President Donald Trump to make a move.
At their next FOMC meeting on Sept. 17, Powell and the Fed governors are widely expected to lower the central bank’s key rate by a quarter percentage point from its current range of 4.25% to 4.5%, assuming inflation and labor market data register as expected.
“This should help keep rates moving lower at least until mid-September,” says Hale.
According to the chief economist, a Fed rate cut will move today’s restrictive policy a little closer to neutral, meaning that the central bank is easing off the monetary brakes in light of slower job growth data while still maintaining a watchful eye on inflation.
What happens after the Fed’s rate cut, however, will depend on the data.
This is because mortgage rates are influenced not only by the Fed’s adjustments, but also by economic growth, labor market, and inflation expectations over time.
“Mortgage rates will continue to decline if data suggest that the labor market is weakening further, or if inflation is lower than expected,” predicts Hale.
How mortgage rates are calculated
Mortgage rates are determined by a delicate calculus that factors in the state of the economy and an individual’s financial health. They are most closely linked to the 10-year Treasury bond yield, which reflects broader market trends, like economic growth and inflation expectations. Lenders reference this benchmark before adding their own margin to cover operational costs, risks, and profit.
When the economy flashes warning signs of rising inflation, Treasury yields typically increase, prompting mortgage rates to go up. Conversely, signs of falling inflation or weakness in the labor market usually send Treasury yields lower, causing mortgage rates fall.
The mortgage rates you’re offered by a lender, however, go beyond these benchmarks and take some of your personal factors into account.
Your lender will closely scrutinize your financial health—including your credit score, loan amount, property type, size of down payment, and loan term—to determine your risk. Those with stronger financial profiles are deemed as lower risk and typically receive lower rates, while borrowers perceived as higher risk get higher rates.
How your credit score affects your mortgage
Your credit score plays a role when you apply for a mortgage. A credit score will determine whether you qualify for a mortgage and the interest rate you’ll receive. The higher the credit score, the lower the interest rate you’ll qualify for.
The credit score you need will vary depending on the type of loan. A score of 620 is a “fair” rating. However, people applying for a Federal Housing Administration loan might be able to get approved with a credit score of 500, which is considered a low score.
Homebuyers with credit scores of 740 or higher are typically considered to be in very good standing and can usually qualify for better rates.
Different types of mortgage loan programs have their own minimum credit score requirements. Some lenders have stricter criteria when evaluating whether to approve a loan. They want to make sure you’re able to pay back the loan.