You’ve been waiting for mortgage rates to drop — and they finally have. But the big questions are: will it stick, and how much lower could they really go?

Experts believe mortgage rates could drop further over the next year. One key factor to keep an eye on is the 10-year Treasury yield. Here's the reason why.

 The Link Between Mortgage Rates and the 10-Year Treasury Yield

For more than 50 years, the 30-year fixed mortgage rate has tended to move alongside the 10-year Treasury yield, which is a key benchmark for long-term interest rates (see graph below).

When the treasury yield goes up, mortgage rates usually rise too. And when the yield drops, mortgage rates tend to go down as well.

This pattern has been consistent for more than 50 years. It’s so reliable that experts have a standard figure for the difference between the two, called the spread. On average, this spread is about 1.76 percentage points, or 176 basis points, as you might hear it referred to.

The Spread Is Shrinking

In the last couple of years, the gap has been a lot wider than usual. Why is that? The spread basically shows how nervous people are about the market. When there's ongoing uncertainty in the economy, this gap tends to get bigger than normal. That's a big part of why mortgage rates have stayed higher than usual lately.

Here’s a hopeful sign: even though there’s still some lingering uncertainty about the economy, the gap is starting to narrow as the way forward becomes clearer (check out the graph below).

This could lead to mortgage rates dropping even further. A recent article from Redfin breaks this down:

““A lower mortgage spread equals lower mortgage rates. If the spread continues to decline, mortgage rates could fall more than they already have.”
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— Redfin

The 10-Year Treasury Yield Is Expected To Decline

It’s not only about the spread. The 10-year Treasury yield is also expected to drop in the coming months. So, when you put together a lower yield with a shrinking spread, you’ve got two major factors that could help bring mortgage rates down as we head into next year.

A key reason experts expect mortgage rates to ease is this long-term relationship, with a small chance they might reach the upper 5% range by the end of next year.

Here’s the simple breakdown: you start with the 10-year Treasury yield, which is around 4.09% right now. Then, you add the average spread of 1.76%. When you put those together, mortgage rates come out to roughly 5.85%.

Just keep in mind that things can change as the economy moves, and there will definitely be some ups and downs along the way.

How these factors play out really depends on how the economy, job market, inflation, and other key elements develop from here. Right now, the forecast for 2026 points to mortgage rates slowly going down. At the moment, things are beginning to head in the right direction.

Bottom Line

Keeping track of all these changes can be pretty overwhelming. That’s why it’s so helpful to have an experienced agent or lender by your side—they’ll handle the hard work for you.

If you’re looking to stay updated on mortgage rates as they change, let’s get in touch. I can keep you informed and help you figure out your next steps.