Mortgage rates have shown modest movement in recent weeks, offering a sense of stability for many buyers and homeowners. As the Federal Reserve wraps up its July 29–30 policy meeting, much of the market’s attention is focused on whether interest rates will hold steady and what signals the Fed might send about the path ahead. 

While these decisions often make headlines, they are just one piece of the puzzle when it comes to mortgage rates. Another important, but less widely discussed, factor is the mortgage spread. In this week’s Mortgage Monitor, we take a closer look at what mortgage spreads are, how they’re calculated, and why they matter in today’s lending environment.

What is a mortgage spread?

A mortgage spread is the difference between the interest rate on a 30-year mortgage and the yield on a 10-year Treasury note. For example, on July 25, 2025, the average mortgage rate was 6.78%,¹ while the 10-year Treasury yield was 4.38%.² That creates a spread of 2.36 percentage points.

This difference exists because mortgage loans carry more risk and complexity than government bonds. Lenders and investors use the spread to account for factors such as credit risk, loan servicing costs, and market uncertainty. Wider spreads may reflect increased caution in the market, while narrower spreads can suggest improving sentiment or stronger competition among lenders.

Why do mortgage spreads matter?

Mortgage spreads help explain why rates may change even when Treasury yields remain steady. A wider spread can contribute to higher mortgage rates, while a narrower spread may coincide with more favorable borrowing conditions.

For borrowers, this means that mortgage rates aren’t determined by one factor alone. Even if the Federal Reserve holds its benchmark rate steady, spreads can shift based on investor sentiment, market risk, and lender competition—ultimately influencing the rate a borrower may be offered.

This dynamic was especially visible in 2023, when spreads widened sharply during a period of elevated market uncertainty. At their peak, spreads exceeded 2.4 percentage points—well above the historical average range of 1.60% to 1.80%³—contributing to mortgage rates reaching as high as 8%, even while Treasury yields remained comparatively lower. Since late 2023, spreads have gradually narrowed. As of mid-July 2025, they remain about 0.50 percentage points above their long-term average, suggesting a slow return toward more typical lending conditions.³

Historically, mortgage spreads tend to settle within a fairly narrow range when markets are stable,” said Brett Hively, Senior Vice President and Mortgage Capital Markets and Financial Strategist at Ameris Bank. “The fact that spreads have been gradually narrowing suggests we may be moving closer to those long-term norms, though it’s too early to say whether that trend will hold.”

Looking Ahead

While spreads have not fully returned to historical norms, the recent trend toward narrowing reflects a market gradually regaining its footing. That shift does not just matter to investors. It has real implications for borrowers. As spreads compress, lenders may be able to offer more competitive rates, helping improve affordability and confidence in the mortgage process.

“When spreads begin to normalize, it’s often a sign that the market is stabilizing,” Hively said. “That stability can create opportunities—not just for lenders, but for borrowers looking to make informed, timely decisions.”

As spreads continue to move toward historical norms, they offer a clearer lens into the health of the mortgage market. This trend reflects improving conditions and the potential for more accessible financing ahead.


Sources:
¹  https://www2.optimalblue.com/obmmi
²  https://ycharts.com/indicators/10_year_treasury_rate
³  https://www.housingwire.com/articles/mortgage-spreads-are-almost-back-to-normal/


The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Ameris Bank does not endorse nor is affiliated with the companies listed in this article.