Mortgage rates today September 25: 30-year rises above 7.4%, 15-year climbs to 6.647% - here’s what borrowers need to know and why mortgage rates are going higher

Current mortgage rate averages

Mortgage rates moved higher today, with the average rate on a 30-year purchase mortgage rising to 7.477%, up from 7.317% a day earlier, as per Zillow data. The latest increase comes as Treasury yields remain elevated and investors continue to react to expectations surrounding the Federal Reserve's interest-rate policy. So that means, for homeowners looking to refinance, rates are also higher. The average 30-year refinance rate is 7.588% and the 15-year refinance rate is 6.648%.

As per US News report, average rates for conforming purchase mortgages are currently: 30-year fixed: 7.477%, 20-year fixed: 7.476%, 15-year fixed: 6.647%, 10-year fixed: 6.75%, 7-year ARM: 6.493%, 5-year ARM: 6.36%, and 3-year ARM: 8.25%. For other types of mortgages, the current rates include 7.263% for jumbo loans, 6.762% for VA loans and 5.99% for FHA loans. Refinancing remains relatively expensive as well, with the average 20-year refinance rate at 7.567% while the 10-year refinance rate is 6.688%.

Why Treasury yields drive borrowing costs

Mortgage rates tend to follow the yield on 10-year US Treasury notes. According to US News, those yields recently climbed to their highest level since 2007 as markets prepared for the Federal Reserve's September meeting and priced in a rate hike. The Fed does not directly set mortgage rates, but its monetary policy can influence the direction of borrowing costs. Treasury yields can also move before the Fed actually changes rates because investors respond to expectations about what the central bank might do next.

That was evident on September 23, when 10-year Treasury yields jumped after Federal Reserve Board member Michael S. Barr spoke at a housing policy summit in Chicago. Barr said more rate hikes were likely to be needed to bring inflation down to the Fed's target in a timely manner. At the same time, Barr noted that monetary policy could eventually help ease some of the pressure on mortgage rates, pointing out that mortgage rates are generally lower when inflation is lower.

The impact of oil prices and inflation

The latest mortgage-rate moves are also tied to broader inflation concerns. As per the US News, mortgage rates have risen since the beginning of the US war in Iran in late February. When the conflict has shown signs of intensifying, mortgage rates and 10-year Treasury yields have tended to move higher. When the conflict has appeared closer to a resolution, both have declined.

Oil prices are an important part of that relationship. Higher energy costs can raise the cost of manufacturing and transportation, putting additional pressure on inflation, which can then contribute to higher interest rates. The August consumer price index report showed inflation running at an annual rate of 3.4%, and US News attributed much of the elevated reading to higher energy costs as the war in Iran pushed up oil prices.

Long-term outlook for borrowers

For borrowers hoping for a quick return to much lower mortgage rates, the outlook remains challenging. US News reported that most experts expect mortgage rates to remain relatively elevated over the next few years, with 30-year fixed rates staying above 6%. There is always a possibility that an unexpected change in the US economy could send rates lower, however, US News noted that rates falling below 3% or even 4% is unlikely in the foreseeable future.

Today's rates are far removed from the historically low levels seen earlier in the decade. As per Freddie Mac data cited by US News, the 30-year fixed mortgage rate dropped to a record low of 2.65% in January 2021 before climbing to nearly 8% in October 2023. The current 30-year purchase rate of 7.477% is above the long-term median of 7.23% tracked since 1971, although it remains well below the record high of 18.63% recorded in 1981.