Why Mortgage Rates Are Dropping — and How Low They Could Go

October 8, 2025

Money bag labeled “RATES,” scattered coins, a green house model, and a downward red arrow.

Are Falling Mortgage Rates Here to Stay?

You’ve wanted mortgage rates to fall — and they finally have. But the big question now is: will it last?

Experts say there’s still room for rates to come down even more over the next year. And one of the best indicators to watch is the 10-year Treasury yield. Here’s why it matters so much for your homebuying plans.

The Link Between Mortgage Rates and the 10-Year Treasury Yield

Chart comparing 10-year Treasury and 30-year fixed mortgage rates from 1971 to 2025.

For more than 50 years, the 30-year fixed mortgage rate has closely tracked the movement of the 10-year Treasury yield, which serves as a benchmark for long-term interest rates.

When the yield climbs, mortgage rates tend to rise.
When the yield falls, mortgage rates typically come down.

It’s a remarkably consistent pattern. In fact, experts often look at the spread — the gap between the Treasury yield and mortgage rates — to gauge where rates should be. Historically, that spread averages about 1.76 percentage points (or 176 basis points).

The Spread Is Shrinking — and That’s Good News

Chart comparing 10-year Treasury yields and 30-year fixed mortgage rates, with an average spread of 2.59.

Over the past few years, that spread has been much wider than normal. Why? Because uncertainty in the economy — from inflation fears to market volatility — caused lenders to price in more risk.

Think of the spread as a “fear meter” for the market. The more uncertain the outlook, the wider the gap. And that’s a big reason why mortgage rates have stayed higher than expected recently.

But here’s the encouraging shift: that spread is finally starting to shrink as confidence grows and the economic path ahead becomes clearer.

As Redfin explains:

“A lower mortgage spread equals lower mortgage rates. If the spread continues to decline, mortgage rates could fall more than they already have.”

That means even if the economy doesn’t change dramatically, this single factor could still push rates lower.

The 10-Year Treasury Yield Is Also Expected To Decline

The other key piece of the puzzle? The Treasury yield itself.

Many experts expect it to decline gradually in the months ahead. So, when you combine a narrowing spread and a falling yield, you get two powerful forces working together to lower mortgage rates further.

Chart comparing the current 6.36% mortgage rate with a 5.85% rate at a normal spread.

Here’s a quick example:

The current 10-year Treasury yield is about 4.09%.
Add the typical spread of 1.76%, and you’d expect mortgage rates around 5.85%.

That’s why many forecasters are projecting rates could dip into the upper 5s by the end of 2026 — if these trends hold steady.

What Could Still Affect the Outlook

Of course, nothing in the economy moves in a straight line. Inflation, job market shifts, and Federal Reserve policy decisions will all influence where rates go from here.

While ups and downs are expected, the general outlook for 2026 points toward a gradual decline — and for buyers, that could open new opportunities to lock in better affordability.