Why Are Mortgage Rates Going Up? Three Forces Driving Rates Higher
If you’ve been following mortgage rates recently, you’ve probably noticed that they have been moving in the wrong direction again.
That’s frustrating for homebuyers, particularly in higher-cost housing markets like Washington, D.C., Maryland and Northern Virginia.
So why are mortgage rates going up?
There is never one simple answer. Mortgage rates are influenced by the bond market, inflation, economic growth, Federal Reserve policy and, most importantly, what investors believe will happen in the future.
But I believe three issues are playing an especially important role right now:
- Continued federal deficit spending
- Tariffs and their impact on consumer prices
- The war involving Iran and rising oil and energy prices
Let’s look at each one — and why they matter to mortgage rates.
-
Federal Deficit Spending Isn’t Going Away
The United States continues to spend substantially more money than it collects.
Through July, the federal government has already accumulated a fiscal-year deficit of approximately $1.8 trillion, with two months still remaining in the fiscal year.
Why does this matter to mortgage rates?
Because when the federal government spends more than it collects, it has to borrow the difference.
The Treasury accomplishes that by selling Treasury bills, notes and bonds. As the government needs to issue enormous amounts of debt, the market has to absorb that additional supply. Investors may demand higher yields to continue buying it, particularly if they become concerned about America’s long-term fiscal position.
And this is where mortgages enter the picture.
The Federal Reserve does not directly set 30-year mortgage rates.
Mortgage rates are much more closely connected to the bond market — particularly Treasury yields and mortgage-backed securities.
So even if the Federal Reserve eventually lowers the federal funds rate, that doesn’t automatically mean mortgage rates will fall with it.
The Congressional Budget Office has projected debt held by the public rising from 101% of GDP in 2026 to 120% in 2036.
As long as Washington continues running enormous deficits and adding to the national debt, I believe that will remain an important source of upward pressure on longer-term interest rates.
-
Tariffs Are Ultimately a Tax on Someone — Often the Consumer
The second issue is tariffs. A tariff is a tax charged on imported goods.
The tariff is generally paid initially by the U.S. company importing the product — not by the foreign country exporting it.
What happens next varies.
The importer can absorb the additional expense and accept lower profits. The foreign manufacturer may lower its price. A retailer may absorb some of it.
But businesses can also pass some or all of the increased cost along to their customers.
And increasingly, research has shown that at least part of the cost of recent tariffs has been passed through to American consumers.
That means tariffs can effectively become another tax on the American consumer through higher prices.
Why does that matter for mortgage rates?
One word:
Inflation.
Federal Reserve research found measurable pass-through of the 2025 tariffs into retail prices. And, the Congressional Budget Office has specifically identified tariffs as one reason inflation has remained elevated in 2026.
Inflation is particularly important to bond investors because they are lending money today and being repaid with dollars in the future.
If those future dollars are expected to buy less because of inflation, investors generally demand a higher interest rate to compensate for that loss of purchasing power.
Tariffs may have legitimate strategic purposes — protecting domestic industries, addressing unfair trade practices or strengthening national security.
But economically, tariffs aren’t free.
Someone pays them.
And when American businesses pass those costs along, that someone is ultimately the American consumer.
-
The War Involving Iran and Higher Oil Prices
The third factor is the conflict involving Iran and its effect on global energy markets.
At first glance, oil prices and mortgage rates might seem completely unrelated.
They’re not.
Oil is one of the fundamental inputs into the global economy.
Higher oil prices mean higher gasoline and diesel prices. They can increase the cost of trucking and shipping goods. Airlines face higher fuel costs. Manufacturers face higher transportation and energy expenses.
Even food becomes more expensive to transport from farms and distribution centers to your local grocery store.
Those costs work their way through the economy.
And once again, we come back to the same problem:
Inflation.
What Does This Mean for Washington, D.C., Maryland and Virginia Homebuyers?
This is where national economic news becomes very local.
Our Washington metropolitan housing market is already expensive.
Whether you’re buying a condo in Washington, D.C., a townhouse in Arlington or Alexandria, or a single-family home in Bethesda, Rockville, Fairfax, Loudoun County or elsewhere in the DMV, mortgage rates can have an effect on your purchasing power.
But there’s another side to the equation that buyers sometimes overlook.
Higher mortgage rates can create opportunities.
When mortgage rates fall significantly, affordability improves.
That’s good news — except everyone else receives the same good news.
Buyers who have been sitting on the sidelines can suddenly return to the market. Competition increases. Multiple offers become more common. Sellers gain leverage. And home prices can respond accordingly.
A higher-rate environment can sometimes provide buyers with something they didn’t have when rates were lower: negotiating power.
Depending on the property and the local market, buyers may be able to negotiate a lower sales price, seller-paid closing costs or a seller contribution toward an interest-rate buydown.
That’s why I don’t believe the decision to buy a home should ever be based solely on today’s mortgage rate.
Don’t Wait for the “Perfect” Mortgage Rate
I’ve been originating mortgages for a long time, and one lesson I’ve learned is that predicting interest rates is extremely difficult.
Wall Street gets it wrong.
Economists get it wrong.
The Federal Reserve gets surprised.
And mortgage professionals shouldn’t pretend we have a crystal ball either.
Rates could certainly come back down.
But for that to happen sustainably, I believe we’re going to need improvement in some combination of inflation, federal fiscal policy, energy prices and geopolitical uncertainty.
Until then, we should expect mortgage rates to remain volatile.
For buyers in Washington, D.C., Maryland and Virginia, rather than asking:
“Should I wait until mortgage rates come down?”
I think a better question is:
“Does buying the right home at today’s price and today’s payment make financial sense for me?”
If the answer is yes, you can buy the home today.
If mortgage rates decline in the future, you may have an opportunity to refinance.
But there’s an important difference between the two:
You can refinance an interest rate. You can’t go back in time and renegotiate the purchase price of the home.
Let’s Run the Numbers
A ½% rate increase on a $1,000,000 mortgage means a $320/month increase. If you were buying a house in that range, I don’t think $320 a month should stop you from buying a house now. If you wait until rates come down, which could take a year or two, that house could cost an extra $40,000, or even $100,000. So to me, you should buy when you want to buy.
We can compare different purchase prices, down payments, loan programs, seller concessions and interest-rate scenarios to determine what makes the most sense for you.
It’s the financing strategy that works for your particular situation.
✅ Let’s connect for a confidential mortgage planning session.
📞 Schedule a Call with Brian Martucci
🌐 Visit www.getloans.com to start your mortgage pre-approval today.
Brian Martucci is a loan officer for Capital Bank Home Loans, a division of Capital Bank, N.A. He has been in the mortgage industry since 1986 and has served in a number of roles, including loan processor, loan officer, mortgage broker, branch manager, and vice president. Brian Martucci – NMLS# 185421. His opinions do not necessarily reflect the opinions and beliefs of Capital Bank Home Loans or Capital Bank. Capital Bank, N.A.- NMLS# 401599. Click here for the Capital Bank, N.A. “Privacy Policy”.
