Mortgage Rates Explained | Bond Markets, FHA vs Conventional & When to Refinance

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"Mortgage rates don’t move exactly the way most people think.

In this conversation with mortgage lender Alex, we break down the real factors that determine mortgage rates, how different loan products compare, and when refinancing might make sense.

Topics covered in this discussion:

How mortgage rates are actually set

• Why mortgage rates follow the 10-year Treasury yield more closely than Federal Reserve rate changes
• The difference between short-term rates vs long-term rates
• How the bond market influences mortgage pricing

The mortgage rate “spread”

• Why mortgage rates are typically 1.5% higher than Treasury yields
• Why that spread is currently closer to 2–2.1%
• What lenders must cover in pricing (risk, staffing, insurance, operations)

Borrower-specific pricing adjustments

• How credit score and loan-to-value ratio (LTV) affect your rate
• What loan-level pricing adjustments (LLPAs) are

FHA vs Conventional Loans

• Who FHA loans are designed for
• FHA upfront mortgage insurance (1.75%) and ongoing premiums
• When conventional loans become the better option
• How PMI can be removed once 20% equity is reached

Refinancing strategies

• When refinancing actually makes financial sense
• The typical 0.75%–1% rate improvement rule
• Why investment property mortgages cost more
• Hidden savings opportunities like loan recasting or insurance reviews

Understanding how mortgage rates are priced can help homeowners and buyers make better decisions when choosing a loan or considering refinancing."
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