Lesson 1 of 4
Fixed and adjustable rates
A mortgage rate is the interest rate on a home loan. On a fixed-rate mortgage, it's set when the loan is made and doesn't change, so the principal-and-interest payment stays the same. Source 1
An adjustable-rate mortgage (ARM) starts with a fixed rate for an initial period. After that, the rate resets to an index, a market interest rate, plus a margin the lender set, within any caps on how much it can change. Source 1 Source 2
In a name like “5/1 ARM”, the first number is how many years the starting rate lasts and the second is how often it adjusts after that, here once a year. Source 1
Lesson 2 of 4
The weekly average
Freddie Mac's Primary Mortgage Market Survey publishes average rates for 30-year and 15-year fixed-rate mortgages on Thursdays at noon Eastern, or on Wednesday when Thursday is a holiday. Source 3 Source 4
Since November 2022 it's been based on thousands of loan applications that lenders submit to Freddie Mac, averaged from Thursday through Wednesday. Source 4
It describes a specific kind of loan: a one-unit home, a loan-to-value ratio of 75 to 80 percent (a down payment of 20 to 25 percent), a credit score of 740 or higher, and a loan within the conforming limit. Source 4
It no longer reports points or fees, so it's a rate, not the full cost of borrowing. Individual loans can carry different rates. Source 4
Lesson 3 of 4
Where the Fed comes in
The Federal Reserve doesn't set mortgage rates. Its FOMC sets a target range for the federal funds rate, the rate banks pay to borrow reserves overnight. Source 5 Source 6
Changes in that short-term rate typically pass through to longer-term rates, including fixed-rate mortgages. Rates on floating-rate loans respond quickly. Source 5
Longer-term rates also depend on what people expect short-term rates and the economy to do over the life of the loan. Because expectations can shift at any time, mortgage rates and Treasury yields can move between Fed meetings too. Source 5
The FOMC holds eight regularly scheduled meetings a year. Source 7
Lesson 4 of 4
What a rate means for a payment
A standard fixed-rate mortgage amortizes: each payment covers that month's interest plus some principal, so the balance reaches zero at the end of the term. Early payments go mostly to interest. Source 8
| Monthly payment at 6% | $1,798.65 |
|---|---|
| Monthly payment at 7% | $1,995.91 |
| Difference per month | $197.26 |
| Difference over 30 years | $71,012 |
| Interest in the first payment at 6% | $1,500.00 of $1,798.65 |
Snoki's Housing Desk posts the weekly average and other rate data with their sources. It doesn't tell anyone whether to buy, sell or refinance.
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Sources
- Freddie Mac: Considering an adjustable-rate mortgage? Here's what you should know (opens in a new tab)
- Consumer Financial Protection Bureau: For an adjustable-rate mortgage, what are the index and margin, and how do they work? (opens in a new tab)
- Freddie Mac: Mortgage rates: Primary Mortgage Market Survey (opens in a new tab)
- Freddie Mac: Freddie Mac's newly enhanced mortgage rate survey explained (2022) (opens in a new tab)
- Federal Reserve Board: Monetary policy: what are its goals? How does it work? (opens in a new tab)
- Federal Reserve Board: What is the Federal Open Market Committee? (opens in a new tab)
- Federal Reserve Board: FOMC meeting calendars and information (opens in a new tab)
- Freddie Mac: Understanding amortization (opens in a new tab)
This guide explains how filings and data releases work. It isn't investment advice, and it never tells you to buy, sell or hold anything. Rules change: the linked sources are the final word.