Mortgage Rates Hit 10-Month Low Before Fed Decision
August 28, 2025: Mortgage rates edged down on Thursday, reaching a new 10-month low, as they continued their uneven downward trend ahead of a widely expected Federal Reserve rate cut in the coming weeks.
The average rate on 30-year fixed home loans was 6.56% for the week ending Aug. 28, down from 6.58% the previous week. Rates averaged 6.35% during the same period in 2024.
After peaking in May, mortgage rates have generally pulled back, giving existing home sales a modest lift in July. However, new home sales slowed.
The Federal Reserve is widely expected to lower its benchmark rate at its next meeting on Sept. 17, with a quarter-point cut anticipated from the current range of 4.25% to 4.5%, assuming inflation and labor market data align with expectations. A reduction would ease monetary policy slightly, reflecting slower job growth while maintaining vigilance over inflation.
What happens beyond the initial cut will depend on incoming data. Mortgage rates respond not only to Federal Reserve actions but also to trends in economic growth, labor market strength, and inflation expectations. Rates could continue to decline if the labor market weakens further or if inflation comes in lower than anticipated.
How mortgage rates are calculated
Mortgage rates are closely tied to the 10-year Treasury bond yield, which reflects broader economic factors such as growth and inflation expectations. When inflation concerns rise, Treasury yields and mortgage rates tend to increase. When inflation or labor market data weaken, yields and mortgage rates typically fall.
In addition to these benchmarks, lenders assess individual borrower profiles. Factors such as credit score, loan amount, property type, down payment size, and loan term influence the final rate offered. Stronger financial profiles are considered lower risk and generally receive more favorable rates, while higher-risk borrowers may be charged more.
How credit scores affect mortgages
A credit score plays a key role in mortgage eligibility and interest rates. Higher scores usually qualify for lower rates, while lower scores may result in higher costs or limited options.
Requirements vary by loan type. Conventional loans often look for a score of at least 620, while certain government-backed loans may allow approvals with scores as low as 500. Borrowers with scores of 740 or higher are usually considered in very good standing and tend to qualify for the best rates.
Different loan programs and lenders may set their own minimum requirements, with some applying stricter criteria to ensure borrowers can repay their loans.
