What Actually Moves Mortgage Rates

A common assumption is that mortgage rates track the central bank's policy rate. They do not, at least not directly, which is why rates sometimes move against the direction of a policy decision.

The long end of the curve

Thirty-year mortgage pricing tracks longer-dated government yields far more closely than short-term policy rates. Those yields reflect expectations about inflation and growth over years, not the current policy setting.

The spread on top

Mortgages price at a spread above those yields. The spread widens when investors demand more compensation for prepayment risk, credit risk or illiquidity — which is why mortgage rates can rise even when government yields are flat.

What genuinely moves them

• Inflation data and inflation expectations
• Labour market strength
• Demand for mortgage-backed securities
• Expectations of future policy, more than policy itself

Why a rate cut may not help you

If a policy cut is already expected, longer yields have usually moved before the announcement. By the time the decision lands, mortgage pricing has often already adjusted — or moves the other way if the accompanying commentary changes expectations.

What to do with this

Do not time a purchase around a policy meeting. Underwrite the deal at the rate you can actually lock, and stress it a point higher.