It has been a particularly bad month for mortgage rates, however they remain below last year’s levels.
And by another margin too. If this were last year, we would be looking at a 7-handle 30-year fixed.
Instead, the 30-year fixed rate is around 6.75%.
Sure, it’s not good news, but it tells you that conditions are much better than they were in 2025.
The reason: mortgage spreads are no longer as tight as they were then.
Tighter Spreads Keeping Mortgage Rates Under 7%…For Now
The 10-year bond yield rose further today on continued fears of inflation linked to the Middle East conflict.
At a glance, it rose another four points to about 4.66%, the highest figure since last January.
Besides, the 30-year fixed is nowhere near its 52-week high.
That high, according to Mortgage News Daily, was 7.08% almost exactly a year ago.
So we’re about 0.375% lower now compared to then, despite bond yields being higher.
The 10-year bond yield is the bellwether of the 30-year fixed mortgage rates and the pair moves in a relative lock step.
This means that they always tend to walk in the same direction. However, there is a spread between the two to compensate mortgage-backed securities (MBS) investors for the additional risk.
That risk is primarily prepayment risk because most loans have an express or implied guarantee in the event of default.
Spreads vary, but historically have been as high as 170 basis points over a 30-year period.
In other words, in normal times, a 4% 10-year bond yield would result in a 30-year fixed rate of around 5.70%.
Today, the spread is very close to normal, about 210 points.
While that sounds high, consider the fact that it was around 250 bps a year ago. That’s why the 30-year fixed rate was 7.10% with a low bond yield.
If we had a normal spread right now, we’d be looking at the 30-year fixed at around 6.375%.
So yes, it could be better, but it could be worse. And this situation keeps it below 7%, for now at least.
Why Are Spreads So Better Now?
Mainly because the risk of prepayment is reduced. Finally, mortgage rates remain at current levels of between 6% and 7%.
They’ve been here for a while and don’t seem to be going anywhere, anytime soon.
As such, there is more certainty for MBS investors looking for a certain yield on their investment.
They don’t have to worry too much about these fast payday loans because of the refinancing development driven by low loan rates.
From 2023 to 2025, there was a lot of disruption and uncertainty in the secondary market as QE ended, QT began, and mortgage rates nearly tripled.
That meant prices had to be more secure than usual, hence the spread.
At one point, these were as wide as 325 bps, which explains how we got the 8% 30-year fixed rate late in 2023.
This is no longer the case and perhaps many investors consider the 200 bps premium too steep for a home loan with an implied or express guarantee to be repaid.
Before creating this site, I worked as an account manager for a real estate broker in Los Angeles. My experiences in the early 2000s inspired me to start writing about mortgages 19 years ago to help prospective (and existing) home buyers better navigate the mortgage process. Follow me on X for the hottest.
