The Mortgage Spread And Rates In 2025

• October 7th

by UrbanTurf Staff

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If you are in the habit of dissecting mortgage rates (like us), you’ve probably noticed something interesting happening lately: even as the 10-year Treasury yield has crept up, 30-year fixed mortgage rates haven’t followed suit as closely as they did in years past. That decoupling has a name: the narrowing of the mortgage spread—and it's been a key reason rates haven't spiked further in 2025.

The mortgage spread is the difference between the interest rate on a 30-year fixed mortgage and the yield on a 10-year U.S. Treasury bond. Normally, this spread reflects a mix of factors: credit risk, prepayment risk, investor demand, and economic uncertainty.

Historically, the mortgage spread hovers around 170 to 180 basis points (1.7% to 1.8%). But from late 2022 through early 2024, that spread ballooned past 300 basis points—a sign that lenders and investors were pricing in a lot more risk and uncertainty. So, even as Treasury yields stayed elevated, mortgage rates were even higher than expected because investors demanded extra compensation to take on mortgage-backed securities.

This year, the spread has narrowed back toward more typical levels, even dipping below 200 basis points at times. That tightening has essentially released pressure on mortgage rates.

Let’s say the 10-year Treasury is yielding around 4.3%—not unusual in today’s climate. If the spread were still up around 300 basis points, mortgage rates would hover above 7%. But with the spread narrowing to about 190 basis points in recent weeks, many lenders are offering 30-year fixed rates in the low 6% range.

This doesn’t mean rates are “low” in the traditional sense—but they're notably lower than they otherwise would be if the spread had remained at pandemic-era highs.

This article originally published at https://dc.urbanturf.com/articles/blog/mortgage_spread_and_rates_in_2025/23917.