Mortgage rates edged up on Thursday as markets assessed the impact of the government shutdown, which began this week just as the Federal Reserve awaited key economic data to guide its next policy moves.
The average rate on 30-year fixed home loans increased to 6.34% for the week ending Oct. 2, up from 6.3% the week before, according to Freddie Mac. Rates averaged 6.12% during the same period in 2024.
“The 30-year fixed-rate mortgage increased again this week but remains below its 52-week average of 6.71%,” says Sam Khater, Freddie Mac’s chief economist. “The last few months have brought lower rates and as indicated by the recently reported increase in pending home sales, homebuyers are feeling more confident to get into the market.”
The federal government halted most of its operations a minute after midnight on Wednesday morning, after Republicans and Democrats in Congress failed to agree on a new spending bill.
“The timing of this disruption is particularly sensitive, coming just after the Federal Reserve cut policy rates for the first time in nine months,” says Realtor.com® senior economist Jiayi Xu.
The Fed is now awaiting critical economic indicators—such as jobs reports and inflation figures—to inform its next steps pertaining to potential future rate cuts after the central bank’s policymakers slashed the federal funds rate last month by a quarter of a percentage point.
But the hotly anticipated jobs and inflation releases for September will most likely be delayed because the Bureau of Labor Statistics has ceased all operations since the start of the shutdown.
“Flying blind amidst heavy fog is a dangerous proposition,” Gregory Daco, chief economist at the consulting firm EY-Parthenon, told the New York Times of the Fed’s current predicament.
The good news is that because the Fed operates independently from the federal government, the shutdown will not affect the timing of its next Federal Open Market Committee meeting on Oct. 28, even if the disruption continues through the end of the month.
“Still, the longer the shutdown drags on, the greater its potential influence on markets and monetary policy decisions will be,” warns Xu.
Mortgage rates are expected to remain within a tight range during the shutdown, unless other unexpected developments emerge, adds the economist.
However, growing uncertainty exacerbated by the shutdown may discourage prospective buyers, potentially delaying home sales—especially in metros with a higher share of federal workers.
“For those moving ahead with their purchasing plans, it is crucial to safeguard budgets against rate fluctuations,” advises Xu.
How mortgage rates are calculated
Mortgage rates are determined by a delicate calculus that factors in the state of the economy and an individual’s financial health. They are most closely linked to the 10-year Treasury bond yield, which reflects broader market trends, like economic growth and inflation expectations. Lenders reference this benchmark before adding their own margin to cover operational costs, risks, and profit.
When the economy flashes warning signs of rising inflation, Treasury yields typically increase, prompting mortgage rates to go up. Conversely, signs of falling inflation or weakness in the labor market usually send Treasury yields lower, causing mortgage rates to fall.
The mortgage rates you’re offered by a lender, however, go beyond these benchmarks and take some of your personal factors into account.
Your lender will closely scrutinize your financial health—including your credit score, loan amount, property type, size of down payment, and loan term—to determine your risk. Those with stronger financial profiles are deemed as lower risk and typically receive lower rates, while borrowers perceived as higher risk get higher rates.
How your credit score affects your mortgage
Your credit score plays a role when you apply for a mortgage. A credit score will determine whether you qualify for a mortgage and the interest rate you’ll receive. The higher the credit score, the lower the interest rate you’ll qualify for.
The credit score you need will vary depending on the type of loan. A score of 620 is a “fair” rating. However, people applying for a Federal Housing Administration loan might be able to get approved with a credit score of 500, which is considered a low score.
Homebuyers with credit scores of 740 or higher are typically considered to be in very good standing and can usually qualify for better rates.
Different types of mortgage loan programs have their own minimum credit score requirements. Some lenders have stricter criteria when evaluating whether to approve a loan. They want to make sure you’re able to pay back the loan.
