Mortgage rates dropped substantially Thursday, as falling oil prices and the tentative U.S.-Iran peace deal pushed long-term borrowing rates lower.
The average rate on 30-year fixed home loans fell to 6.43% for the week ending July 2, down 6 basis points from 6.49% the previous week, according to Freddie Mac. For perspective, rates averaged 6.67% during the same period in 2025.
It marked the biggest weekly decline in mortgage rates since late April, and took average rates to their lowest level since May 14.
“The 30-year fixed-rate mortgage eased slightly this week averaging 6.43%,” says Sam Khater, Freddie Mac’s chief economist. “With rates at a seven-week low and purchase demand continuing to edge higher, it’s an encouraging sign as prospective homebuyers respond to modest improvements in affordability.”
Easing oil prices have been the key factor for mortgage rates, although new labor market data in recent days has influenced the key 10-year Treasury yield as well. A stronger-than-expected job openings report sent yields higher this week, while the key monthly reading on U.S. job growth showed weak hiring, partly reversing the trend.
“For most of Freddie’s survey window, yields sat near their lowest levels since early May as oil prices kept retreating and Iran ceasefire talks progressed, leaving room for this week’s average to land below last week’s mark despite Tuesday’s late bump,” says Realtor.com® economist intern Glen Morgenstern.
The Federal Reserve has held rates steady since December but has turned notably more hawkish this year as new Chair Kevin Warsh and the Federal Open Market Committee (FOMC) focused their attention on combating higher inflation.
For buyers, this environment of continued relative stability comes as good news after a volatile spring, and Realtor.com June housing data released Wednesday shows that shoppers are adapting to the current rate reality rather than waiting it out, according to Morgenstern.
As reflected in the report, listing prices were down 2.5% year over year in June, the steepest annual decline in the data series since 2017, while pending sales grew for a seventh straight month.
While April’s Case-Shiller index still shows nominal price growth, it trailed inflation for an 11th-straight month, meaning that even as sticker prices rise, the real price of a home for buyers is going down relative to other goods and services.
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 increase. 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, which can reduce monthly payments.
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. Ultimately, they want to make sure you’re able to pay back the loan.
