Mortgage Rates Jump to Highest Level in Nearly a Year as Iran War Reignites

Mortgage rates surged this week to levels not seen in 11 months as the conflict between the U.S. and Iran continued ratcheting up with no resolution in sight, putting renewed upward pressure on energy prices and bond yields.

The average rate on 30-year fixed home loans jumped to 6.55% for the week ending July 16, up 6 basis points from 6.49% the previous week and the highest since August 2025, according to Freddie Mac. For perspective, rates averaged 6.75% during the same period in 2025.

"The 30-year fixed-rate mortgage averaged 6.55% this week," says Sam Khater, Freddie Mac's chief economist. "Purchase application demand has weakened recently, but housing affordability is more favorable and housing inventory continues to rise, thus the backdrop for prospective homebuyers is modestly improving."

An encouraging inflation report earlier this week that showed CPI headline inflation cooling to 3.5% and core inflation easing to 2.6% raised hopes for a pullback in borrowing costs, but those were dashed by the flare-up in hostilities in the Middle East, where American and Iranian forces continued to trade airstrikes in fighting over control of the Strait of Hormuz.

Speaking with Fox News chief foreign correspondent Trey Yingst Tuesday, President Donald Trump threatened to target Iran's infrastructure "very hard" unless the country's leaders resume peace talks.

"Next week it gets really bad for them because next week comes the power plants," said Trump. "Next week comes the bridges. We're gonna knock out all their power plants. We're going to knock out all their bridges unless they get to the table and negotiate."

Tehran responded to the president's sabre-rattling rhetoric by threatening to carry out airstrikes throughout the region.

This escalating tension pushed oil prices and Treasury yields higher, dragging mortgage rates up with them.

Realtor.com® senior economist Hannah Jones notes that the recently released midyear forecast update still calls for mortgage rates to ease modestly over the second half of the year, and this week's inflation print supports that view over the long run.

Yet, Jones concedes that the near-term path remains "hostage" to how the Iran situation develops.

"The housing market has otherwise continued shifting in buyers' favor this year, with prices cooling, inventory building, and sellers offering more concessions.," says the economist. "A cooler CPI reading is a step in the right direction, but until mortgage rates actually follow suit, buyers will keep feeling the pinch of stubbornly high borrowing costs even as other conditions improve."

How mortgage rates are calculated

Mortgage rates are determined by a delicate calculus that factors in the state of the economy and an individual’s financial health. They are most closely linked to the 10-year Treasury bond yield, which reflects broader market trends like economic growth and inflation expectations. Lenders reference this benchmark before adding their own margin to cover operational costs, risks, and profit.

When the economy flashes warning signs of rising inflation, Treasury yields typically increase, prompting mortgage rates to increase. Conversely, signs of falling inflation or weakness in the labor market usually send Treasury yields lower, causing mortgage rates to fall.

The mortgage rates you’re offered by a lender, however, go beyond these benchmarks and take some of your personal factors into account.

Your lender will closely scrutinize your financial health—including your credit score, loan amount, property type, size of down payment, and loan term—to determine your risk. Those with stronger financial profiles are deemed as lower risk and typically receive lower rates, while borrowers perceived as higher risk get higher rates.

How your credit score affects your mortgage

Your credit score plays a role when you apply for a mortgage. A credit score will determine whether you qualify for a mortgage and the interest rate you'll receive. The higher the credit score, the lower the interest rate you'll qualify for.

The credit score you need will vary depending on the type of loan. A score of 620 is a "fair" rating. However, people applying for a Federal Housing Administration loan might be able to get approved with a credit score of 500, which is considered a low score.

Homebuyers with credit scores of 740 or higher are typically considered to be in very good standing and can usually qualify for better rates, which can reduce monthly payments.

Different types of mortgage loan programs have their own minimum credit score requirements. Some lenders have stricter criteria when evaluating whether to approve a loan. Ultimately, they want to make sure you're able to pay back the