Mortgage Rates Update: August 7th, 2025

This week’s mortgage market brought welcome relief for borrowers, as rates posted their sharpest weekly decline in recent months. Economist Bill Knudson notes that while the drop is modest in absolute terms, the widening spread between mortgage and Treasury rates signals continued lender caution.

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For a $100,000 loan at 6.63%, the monthly payment decreased by $6 is $641.

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• The next CPI release is Aug 12. 

• The next Fed meeting is September 17

Mortgage Rates Update: August 7th, 2025

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Key Takeaways:

• Rates Move Lower: The 30-year fixed mortgage rate fell 9 basis points (bp) to 6.63%. For a $100,000 loan, the monthly payment dropped $6 to $641.

• Affordability Metrics at 6.63%:

  • Interest portion: $387/month (60% of payment)

  • Amortization: $88/month

  • Income to qualify: $27,456

  • Income multiplier: 3.6x

• Spread Dynamics:

  • The 10-Year Treasury yield decreased 14bp to 4.23%.

  • Mortgage–Treasury spread widened to 240bp—72bp above the historical average of 168bp.

  • This elevated cushion reflects persistent risk management in lending.

• Market Context:

  • CPI remains at 2.7%, keeping inflation in the conversation.

  • Mortgage rates have fallen more than Treasury yields over the past year, yet the spread remains well above pre-2024 levels.

Knudson emphasizes that borrowers are benefitting from slightly lower payments, but lenders’ elevated spread signals they are not yet ready to fully pass along Treasury yield declines. The cautious stance may persist until inflation stabilizes further and credit risk eases.