How to report on mortgage rates

Finance 411, Housing,

House keys

By Paddy Hirsch

First, let’s define some terms: A mortgage is simply a financial industry word for a loan used to purchase all kinds of real estate. Real estate, also known as realty in the United States, is just an industry word for property: parcels of land, with or without structures built on them. And a mortgage rate is the interest a borrower pays on their loan.

When we talk about mortgage rates, then, we’re talking about the cost of borrowing to buy all kinds of property, not just residential homes. We’re also talking about what it costs companies to buy land or buildings. Those firms might develop that property for people to live in, or for companies to operate out of. 

That means that mortgage rates don’t just affect homeowners; they also affect home renters. They also affect corporations, who have a tendency to pass their borrowing costs onto consumers in the form of higher prices for goods. Rising mortgage rates, then, aren’t just tough on homeowners: they end up affecting all of us, either directly or indirectly. Moreover, because the property market is by far the biggest market in the United States, in terms of asset values, changes in mortgage rates can have a huge impact on the economy in a short space of time. 

A loan by any other name…

A mortgage is just like any other loan. The borrower gets a chunk of money — the principal — to purchase the real estate. They agree to pay the lender a certain amount of interest — and usually principal — every year until the loan matures. If the borrower fails to make those payments, the lender gets to keep the collateral backing the loan: the real estate itself.

Mortgages are just like all other loans in another way: they come with rates of interest governed by a base lending rate, set by the Federal Reserve. Reporters need to keep an eye on that base rate, because any change will affect all mortgage loans going forward, and in many cases on existing loans.

The mortgage market falls into roughly two areas: residential and commercial. Residential is the biggest: the value of all the residential property in America is around $50 trillion, and roughly 60 percent of homes in the United States are mortgaged. The commercial market is about half the size, roughly $20 trillion in assets, about a quarter of which is mortgaged.

The mortgages in both of those markets come in a wide variety of shapes and sizes, but there are some broad brackets. For example, by far the most popular residential mortgage allows American homebuyers to lock in their interest rate for 30 years. But this doesn’t mean that the residential mortgage market is static and can be ignored by reporters; new loans are being issued every day at different rates as the Fed’s base rate changes. If rates go up, it becomes more expensive for new homebuyers to borrow. 

Consumer spending on new homes is a huge driver of the economy, so anything that crimps homebuying activity, and the ancillary spending that goes with it, has an outsize effect on all sorts of business, and the wider economy. 

Commercial mortgages are usually much shorter-term loans. And while some do come with fixed rates, most are variable-rate loans. This means they come priced with a fixed interest rate that “floats” above a benchmark. The benchmark could be one of several that lenders like to use, such as the Prime Rate, or the Secured Overnight Financing Rate. But the important thing to know is that all benchmarks are linked to the Federal Reserve’s base rate. When that base rate moves up or down, the overall mortgage rate rises or falls. 

What this means is, that when the Fed adjusts rates, borrowers with variable-rate loans are immediately affected, and they have to adjust their business accordingly — with all the knock-on effects through the economy that implies. 

Eyes on the prize

So how to keep track of it all? A good place to start is with the base rate that governs all other rates, the target rate for federal funds. Monitor the eight meetings that the Federal Open Markets Committee holds during the year. Then observe the knock-on effect of movements in the base rate by looking at the rates that banks and other lenders are offering people shopping for mortgages.

Because the real estate market is so big, and so central to the state of the U.S. economy, all sorts of agencies track it and generate vast amounts of data for the reporter to crunch. But it’s worth remembering that many of these agencies have an agenda. Sure, banks advertise their prices, giving us a great way to track actual mortgage rates, but they’re competing for business. Nonprofits like the National Association of Realtors track both commercial and residential property closely, and give their findings away for free, but they’re representing a membership dependent on a healthy market.

Some good objective resources are the International Monetary Fund, which tracks global housing, and the various regional bank branches of the Federal Reserve — although you could argue the Fed has an ax to grind when it comes to the housing market, given its importance to the economy. The same caveat goes for the wealth of data generated by government housing organizations like HUD, Fannie Mae and Freddie Mac. Universities can be a good source of information, especially for reporters tracking regional markets, while the national picture is well covered by organizations like Standard & Poor’s, which operates the Case-Shiller Home Price Index.


Patrick Hirsch is a Freelance Reporter for NPR. He can be reached at and their website is Finance 411 is a bi-monthly feature, presented by RTDNA and the National Endowment for Financial Education.

Finance 411 is a bi-monthly feature, presented by RTDNA and the National Endowment for Financial Education. Interested in becoming a contributor? Email for more information.