Today, borrowers taking out a 30-year mortgage, by far the most popular option, pay an average of 3.9%, near record lows. At that rate, the monthly payment on a $200,000 mortgage would be $944. For comparison, at 6%—where 30-year mortgages hovered before the Fed started cutting interest rates in 2007—that same loan would cost $1,200 a month.
The Federal Reserve plays a large role in inflation expectations. This is because the bond market’s perception of how well the Federal Reserve is controlling inflation through the administration of short-term interest rates determines longer-term interest rates, such as the yield of the U.S. Treasury 10-year bond. In other words, the Federal Reserve sets current short-term interest rates, which the market interprets to determine long-term interest rates such as the yield on the U.S. Treasury 10-year bond. However, the interest rates on 30-year mortgages are highly correlated with the yield of the U.S. Treasury 10-year bond. If you’re trying to forecast what 30-year fixed-rate mortgage interest rates will do in the future, watch and understand the yield on the U.S. Treasury 10-year bond (or the five-year note).