Mortgage Rates Update: August 28th, 2025

This week’s mortgage market update shows a slight easing in rates, even as spreads widened further. Economist Bill Knudson underscores that lenders remain cautious, holding margins well above historic averages despite steady inflation signals.

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For a $100,000 loan at 6.56%, the monthly payment remained at $636.

Upcoming releases:

• The next new jobs report is Sept 5

  
  

• The next CPI release is Sept 11. 

• The next Fed meeting is Sept 17

Mortgage Rates Update: August 28th, 2025

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Key Developments

• Mortgage Rates Decline:

  • The 30-year fixed rate edged down 2 basis points (bp) to 6.56%.

  • On a $100,000 loan, the monthly payment fell by $1 to $636.

• Borrower Affordability Metrics:

  • Net monthly interest expense: $383.

  • Interest makes up 60% of the payment.

  • Income needed to qualify: $27,258, based on a 3.7x multiplier.

• Yield Spread:

  • The spread between the 30-year mortgage and the 10-year Treasury rose to 234bp, up 9bp from last week.

  • This is 66bp above the long-run historical average (168bp), indicating a significant “safety cushion” for lenders.

• Market Context:

  • The 10-year Treasury yield fell 11bp to 4.22%, while CPI remained steady at 2.7%.

Knudson’s Perspective

Knudson interprets the widening spread as evidence that lenders remain defensive, even as Treasury yields decline. This conservatism reflects ongoing credit and inflation risks. He expects that as inflation moderates into the 2.5%–3% range over the next year, spreads should narrow, offering borrowers gradual relief. For now, stability in rates masks an underlying caution embedded in lending markets.