Over one year, the Fed's rate fell a little and mortgage rates rose more than a point
Put two Octobers side by side. On October 23, 2025, the Federal Reserve's target for its overnight rate (the federal funds rate, which banks charge each other to borrow overnight) was 4.00 to 4.25%. Freddie Mac's weekly survey put the average 30-year fixed mortgage rate at 6.19%.
A year later, the Fed's target was 3.75 to 4.00%, a quarter point lower. That is the range the Fed set on September 16, 2026, and the latest one confirmed when this piece was checked on October 28, hours before that day's scheduled announcement. In the survey dated October 22, 2026, the average 30-year mortgage was 7.32%. In the two weeks before that, on October 8 and October 15, it had been 7.40%.
So the Fed's rate fell slightly and mortgage rates rose by 1.13 points. Something other than the Fed's headline rate moved mortgages. Over the same year, the yield on the 10-year US Treasury note rose from 4.01% to 4.96%, almost a full point. Most of the story is in that number.
- Freddie Mac Primary Mortgage Market Survey
- Freddie Mac Primary Mortgage Market Survey archive
- Federal Reserve press release, September 17, 2025
- Federal Reserve press release, September 16, 2026
- 30-Year Fixed Rate Mortgage Average in the United States (FRED)
- Market Yield on U.S. Treasury Securities at 10-Year Constant Maturity (FRED)
Why a 30-year mortgage follows the 10-year Treasury
The Fed sets the price of money overnight. A mortgage is a loan for decades, and the bank that writes it usually does not keep it. Most US mortgages are bundled into mortgage-backed securities, bonds paid from many borrowers' monthly payments, and sold to investors. What those investors are willing to pay for such bonds largely sets the rate a new mortgage has to carry.
A 30-year mortgage rarely runs its full term. Borrowers sell the house or refinance, and every monthly payment returns part of the principal. So investors do not compare a mortgage bond with a 30-year Treasury bond. The usual yardstick is the 10-year Treasury note. A 2026 paper from the Federal Reserve Bank of Boston calls it an imperfect one, because a mortgage bond pays back its principal bit by bit and at unpredictable times, carries a different guarantee, and comes with costs of making and running the loan that a Treasury does not have.
That makes the 10-year yield plus a spread, an extra margin on top, a way of explaining mortgage rates, not a formula lenders apply. Mortgage rates also reflect how mortgage bonds themselves trade, the costs borrowers and lenders face, and a prepayment risk that changes over time.
The Fed's overnight rate reaches the 10-year yield only indirectly. That yield reflects what investors expect the Fed's rate to average over the next decade, and what extra they want for tying up money that long, for example to cover the risk of inflation. On October 5, 2026, the 10-year yield closed at 5.31%, its highest close since May 2002, according to Treasury's daily yield data as published by the St. Louis Fed. By October 22 it had come back to 4.96%.
What the gap above the 10-year pays for
A mortgage costs more than the 10-year yield, and the difference is called the mortgage spread. Part of it pays for running the loan. Lenders have costs and want a profit, someone collects the payments each month, and Fannie Mae and Freddie Mac charge a guarantee fee for promising investors they will be paid even if a borrower defaults. How large that fee is depends on what is counted. The Boston Fed paper uses about 0.42 point in building its comparison. The Federal Housing Finance Agency, counting both ongoing and upfront fees on the single-family loans the two companies acquired in 2024, reports an average of 65.2 basis points (hundredths of a percentage point), about 0.65 point.
The larger and more changeable part pays investors for one risk. A US borrower can pay off the mortgage at any time without penalty. When rates fall, borrowers refinance, and investors get their money back just when they can only relend it at lower rates. When rates rise, borrowers keep their cheap loans, and investors are stuck with them. The Boston Fed paper argues that this prepayment option accounts for most of the spread that remains after costs. Its analysis finds that expectations about rates, how much rates swing and the cost of refinancing together explain about 80% of how that remainder moves. That is one paper's research finding, not a fixed rule.
That option is worth more when rates swing hard, because big swings make a profitable refinance more likely. The Federal Reserve Bank of Dallas found that in 2022 mortgage rates rose mainly because Treasury yields rose, and that a higher cost of the prepayment option, reflecting wider uncertainty about where rates were heading, amplified the rise.
How wide the gap is now, measured one way
We measured the spread one simple way : each weekly Freddie Mac survey rate minus the 10-year Treasury close on the same day, using public data from the St. Louis Fed (FRED). Freddie Mac's figure averages rates offered from Thursday to Wednesday, so subtracting one day's Treasury close gives an approximate gap, not a quote from a single moment. By that measure, the spread averaged 1.76 points from 2000 to 2019, and 1.69 points from 2010 to 2019. It averaged 2.58 points from 2022 to 2024, years when rates moved violently.
In October 2026 it widened week by week, to 2.18 points on October 8, 2.30 on October 15 and 2.36 on October 22. That is about 0.6 point above the 2000 to 2019 average. A year earlier, on October 23, 2025, it was 2.18.
By this measure, of the 1.13-point rise in the 30-year rate, 0.95 point came from the 10-year yield and 0.18 point from a wider spread. Pairing the dates differently or choosing other years gives somewhat different averages, so the exact figures depend on the method.
What these numbers do not tell you
Freddie Mac's figure is a national average for one kind of borrower : conventional loans to buy a single-family home the borrower will live in, with good or excellent credit and a 20% down payment. It is not the rate any one person will be offered. Credit, down payment, loan size and the lender all change it.
Nothing here says where mortgage rates go next. The 10-year yield and the spread can each rise or fall, and they need not move together. The historical averages describe the past over the years and method stated, and they promise nothing about the future. New figures will keep arriving. The Fed's next decision is due on October 28, 2026, and when this piece was checked it had not yet been announced, so the target range given here is the one set on September 16. Freddie Mac's next survey is due on October 29, so every rate in this piece is given with its date.
What the president's new housing executive order deals with
Executive Order 14438, "Decreasing Housing Costs for the American People", is dated October 22, 2026, and its Federal Register publication date is October 28. It calls for agency actions and pilot programs on the costs around a mortgage : how title risk (the risk of a flaw in the legal record of who owns the home) is assessed and charged on some refinances, cancelling mortgage insurance on time once a loan falls to 78% of the home's value, rates on certain direct home loans from the Department of Veterans Affairs and the Department of Agriculture, and factory-built housing.
Many of these steps are pilots or come with conditions, and they depend on agencies and the industry acting on them. They deal with the fees and costs layered on a mortgage, not with Treasury yields or the spread investors demand, the two forces this piece describes.
The sentence to take away
A 30-year mortgage rate is set in the market for mortgage bonds, where it is measured against the 10-year Treasury yield, not the Fed's overnight rate. Above that yield sits a spread that pays for running the loan and, by the Boston Fed's account, mostly for the borrower's right to refinance whenever rates fall. In October 2026 both parts were high at once, and that is why the average mortgage cost more than 7% while the Fed's target range was 3.75 to 4.00%. To understand a mortgage rate, look at the 10-year yield and the spread, not the Fed's headline number.
