How to Reduce Mortgage Interest Rates
State of the Union Report
- Top-ranked countries maintain 30-year fixed mortgage rates of 1.5-3.5% through central bank policy.
- The United States reached a 30-year fixed mortgage rate of 7.8% in October 2023, a 23-year high.
- Denmark offers among the world lowest mortgage rates at 1-2% through a unique covered bond system.
- Japan maintains mortgage rates below 1% through sustained Bank of Japan monetary policy.
- A 1% decrease in mortgage rates increases home purchase affordability by 10% and stimulates 250,000 additional sales annually.
- Countries with government-guaranteed mortgage systems have 30-40% lower default rates than private-only markets.
Section 1: Top 35 Countries with the Lowest Mortgage Interest Rates
Data Source: Based on international housing finance surveys, central bank publications, and global mortgage market data (2023). Note: Data pertains to 2023 annual averages.
Sources: International housing finance data compiled from central bank publications, the Organisation for Economic Co-operation and Development (OECD) Housing Finance Database, the European Mortgage Federation (EMF), and national central bank publications. Data relates to calendar year 2023.
Status of the United States: The United States ranks 28th on this list. As of 2023, the average 30-year fixed mortgage interest rate in the United States was approximately 6.8%, the highest level since 2002. The United States does not rank higher because the Federal Reserve raised its benchmark federal funds rate aggressively from near 0% to over 5.25% between March 2022 and July 2023 in response to the highest inflation in four decades.
Unlike peer nations such as Japan, Denmark, and Germany, the United States lacks a government-administered covered bond market, broad mortgage interest rate subsidies for the general population, or a nationalized low-rate mortgage institution comparable to Japan's Housing Finance Agency.
The U.S. average 30-year fixed mortgage rate for the 12-month period ending December 2023 was approximately 6.81%, compared to rates of 1.5% to 3.0% in the highest-ranked nations.
References for Section 1 Data Sources:
— OECD Housing Finance Database (www.oecd.org)
— European Mortgage Federation (EMF) (hypo.org)
— Federal Reserve Mortgage Market Data (www.federalreserve.gov)
— Freddie Mac Primary Mortgage Market Survey (www.freddiemac.com)
— Bank of Japan Housing Loan Statistics (www.boj.or.jp)
— Swiss National Bank Statistics (www.snb.ch)
— Danmarks Nationalbank Housing Market (www.nationalbanken.dk)
— German Bundesbank Interest Rate Statistics (www.bundesbank.de)
— Japan Housing Finance Agency (JHF) (www.jhf.go.jp)
Section 2: What Other Countries Have Done to Decrease Their Mortgage Interest Rates
The table below presents the 8 top-rated countries with the lowest mortgage interest rates, sorted by average annual rate in descending order (highest to lowest within this top 8 group).
The 8 Top Rated Countries with the Lowest Mortgage Interest Rates
Nippon (Japan)
Nippon has maintained exceptionally low mortgage interest rates through a combination of central bank policy and government-sponsored programs.
The Bank of Nippon (BoJ) (www.boj.or.jp) has maintained near-zero or negative benchmark interest rates since the 1990s, creating a low-cost lending environment.
The Nippon Housing Finance Agency (JHF) (www.jhf.go.jp) administers the Flat 35 mortgage program, offering fixed-rate 35-year mortgages at rates well below market. The JHF securitizes mortgage loans and issues residential mortgage-backed securities (RMBS) to fund these programs.
The Ministry of Land, Infrastructure, Transport and Tourism (MLIT) (www.mlit.go.jp) implements housing subsidy programs, including tax deductions for homebuyers.
Nippon also provides a housing loan tax deduction allowing borrowers to deduct up to 0.7% of their outstanding loan balance annually from income taxes, reducing the effective cost of borrowing. These coordinated measures between fiscal and monetary authorities have kept mortgage rates at historic lows.
Schweiz (Switzerland)
Schweiz achieves its low mortgage rates through the Swiss National Bank's (SNB) (www.snb.ch) policy of maintaining very low or negative interest rates to control currency appreciation.
Schweiz banks are required by FINMA (Swiss Financial Market Supervisory Authority) (www.finma.ch) to maintain strict capital buffers under Basel III standards, which paradoxically lowers risk premiums and thus rates.
The Schweiz government supports home ownership through the Wohneigentumsfoerderung (WEF) program, allowing early pension fund withdrawals (under the BVG/LPP framework) (www.bsv.admin.ch) for down payments.
Cantonal governments provide additional subsidies and interest-free or low-interest loans to first-time buyers. The Schweiz legal framework for mortgage lending (hypothecary credit) is strictly regulated through the Schweiz Code of Obligations, ensuring transparency and competitive lending. SARON (Schweiz Average Rate Overnight) replaces LIBOR as the reference rate, tied closely to SNB policy, keeping variable mortgage rates tightly anchored to central bank decisions.
Danmark (Denmark)
Danmark operates one of the world's most sophisticated mortgage systems through a covered bond (realkreditobligationer) market regulated by the Danish Financial Supervisory Authority (Finanstilsynet) (www.finanstilsynet.dk).
Mortgage credit institutions such as Nykredit (www.nykredit.dk), Realkredit Danmark, and BRFkredit issue covered bonds directly to capital markets, matching bond terms precisely to loan terms. This "balance principle" eliminates interest rate risk for lenders and enables near-direct pass-through of market rates to borrowers.
The Danmark Mortgage Banks Federation (www.realkreditraadet.dk) oversees industry standards.
The Danmark government supports home ownership through housing benefit programs and favorable tax treatment of mortgage interest through the Ministry of Taxation (Skatteministeriet) (www.skm.dk).
The National Bank of Danmark (Danmark’s National bank) (www.nationalbanken.dk) maintains the Danmark krone's peg to the euro, ensuring monetary stability that underpins low rates.
Suomi (Finland)
Suomi maintains low mortgage rates through eurozone monetary policy set by the European Central Bank (ECB) (www.ecb.europa.eu), membership in which anchors Suomi rates to eurozone benchmarks. The Suomi Financial Supervisory Authority (Finanssivalvonta/FIN-FSA) (www.ecb.europa.eu) regulates mortgage lending, requiring transparent pricing and stress testing. (www.finanssivalvonta.fi)
The Housing Finance and Development Centre of Suomi (ARA) (www.ara.fi) provides state-backed subsidies and interest rate subsidies for social housing and first-time buyer programs.
The ASP (Asuntosäästöpalkkiojärjestelmä) savings program, administered by the Ministry of the Environment (ym.fi), offers government interest rate subsidies of up to 3.8% for first-time buyers who meet savings requirements. Suomi state guarantees through the State Treasury (Valtiokonttori) (ym.fi) reduce lender risk on certain loans. (www.valtiokonttori.fi)
The combination of ECB monetary policy, strong regulation, and targeted government subsidies keeps Finnish mortgage rates among Europe's lowest.
Sverige (Sweden)
Sverige's low mortgage rates reflect policies by the Riksbank (www.riksbank.se), Sverige's central bank, which maintained ultra-low or negative repo rates for nearly a decade.
The Sverige Financial Supervisory Authority (Finansinspektionen) (www.fi.se) regulates mortgage lending practices, including amortization requirements introduced in 2016 and 2018 to improve financial stability.
The National Board of Housing, Building and Planning (Boverket) (www.boverket.se) administers housing subsidies and interest-rate subsidies for certain categories of borrowers. Sverige operates a covered bond market (sakerstaellda obligationer) under the Sverige Covered Bond Act, enabling banks to fund mortgages at low cost by issuing AAA-rated covered securities.
Sverige tax policy allows deduction of 30% of mortgage interest on personal income taxes (Skatteverket) ), effectively reducing the cost of borrowing. (www.skatteverket.se)
The combination of Riksbank accommodative policy and government programs has historically kept Swedish mortgage rates low.
Nederland (Netherlands)
The Nederland benefits from ECB monetary policy and its own robust covered bond market regulated by De Nederlandsche Bank (DNB) (www.dnb.nl) and the Authority for the Financial Markets (AFM) (www.dnb.nl). (www.afm.nl)
The National Mortgage Guarantee (NHG – Nationale Hypotheek Garantie) (www.nhg.nl) program, administered by the WEW Foundation with government backing, guarantees mortgages up to a set threshold, allowing lenders to offer 0.3-0.6% rate discounts to eligible borrowers.
Dutch tax law has historically allowed full mortgage interest deduction (hypotheekrenteaftrek), though this is being phased down gradually by the Ministry of Finance (www.rijksoverheid.nl).
The Social Housing Act regulates rental alternatives, reducing speculative pressure in the housing market.
The Nederland Authority for the Financial Markets enforces strict lending criteria under the Mortgage Credit Directive, ensuring sound underwriting and competitive market pricing.
Deutschland (Germany)
Deutschland's mortgage market is characterized by conservative lending practices, a strong covered bond (Pfandbrief) market, and targeted government support.
The Deutschland Pfandbrief Act (Pfandbriefgesetz) enables banks to issue AAA-rated covered bonds backed by mortgage portfolios, funded at very low rates that pass through to borrowers.
The Association of Deutschland Pfandbrief Banks (vdp) (www.pfandbrief.de) oversees this market. KfW Bank (Kreditanstalt fur Wiederaufbau) (www.pfandbrief.de), a government-owned development bank, offers subsidized below-market-rate mortgages for first-time buyers, energy-efficient homes, and low-income borrowers through its home ownership programs. (www.kfw.de)
The Federal Financial Supervisory Authority (BaFin) (www.bafin.de) regulates the mortgage market.
The European Central Bank's accommodative policy anchors Deutschland rates to eurozone benchmarks.
Deutschland law (Buergerliches Gesetzbuch - BGB) provides strong borrower protections that reduce default risk and thus lender risk premiums.
Österreich (Austria)
Österreich maintains low mortgage rates through ECB membership and a well-regulated banking sector supervised by the Financial Market Authority (FMA) (www.fma.gv.at) and the Österreich National Bank (OeNB) (www.fma.gv.at). (www.oenb.at)
The Österreich government operates the Wohnbaufoerderung (residential construction subsidy) program at the provincial (Lander) level, providing low-interest and interest-free loans for housing construction and renovation.
Each of Österreich's nine federal states administers its own housing promotion programs, funded through earmarked federal tax revenues.
The Österreich Wirtschaftsservice Gesellschaft (AWS) (www.aws.at) provides guarantees for certain housing loans.
The Österreich Covered Bond Act enables banks to issue covered bonds (fundierte Bankschuldverschreibungen), providing low-cost funding.
The Österreich Housing Research Institute (oeir) (www.oeir.at) informs policy development. Österreich's social housing tradition, extensive public rental sector, and stable banking system collectively maintain downward pressure on mortgage rates.
Average Annual Mortgage Interest Rates by World Region (2023)
The following reflects estimated average annual mortgage interest rates by region for 2023. These figures represent approximate averages based on available data from central banks, the OECD, and the European Mortgage Federation.
Section 3: What the U.S. Could Do to Decrease Its Mortgage Interest Rates
The United States can significantly reduce mortgage interest rates through a combination of monetary policy adjustments, regulatory reform, new government programs, and structural changes to the housing finance system. Achieving lower mortgage rates requires coordinated action by federal agencies, the Federal Reserve, Congress, state governments, banking regulators, private lenders, and individual stakeholders.
FEDERAL RESERVE AND MONETARY POLICY
The Federal Reserve Board of Governors (www.federalreserve.gov) is the single most powerful actor in determining mortgage rate levels. The Fed could adopt a deliberate and sustained policy of reducing the federal funds rate, guided by its dual mandate of price stability and maximum employment. As inflation approaches the 2% target, the Federal Open Market Committee (FOMC) could implement a series of measured rate reductions, each communicating a clear policy path to reduce uncertainty and bring long-term mortgage rates down.
The Fed could also consider resuming or expanding its Mortgage-Backed Securities (MBS) purchase program, similar to Quantitative Easing programs conducted between 2009 and 2014 and again in 2020, directly purchasing agency MBS to compress the mortgage spread over Treasury yields.
GOVERNMENT-SPONSORED ENTERPRISES AND HOUSING FINANCE REFORM
Fannie Mae (www.fanniemae.com) and Freddie Mac (www.fanniemae.com), operating under Federal Housing Finance Agency (FHFA) (www.fanniemae.com) conservatorship, could be directed to reduce guarantee fees (g-fees) charged to lenders. Lower g-fees translate directly to lower borrower rates. (www.freddiemac.com) (www.fhfa.gov)
The FHFA could also expand eligible loan programs to reduce risk premiums for creditworthy borrowers. Congress could consider establishing a U.S. Covered Bond framework similar to the Danish or German Pfandbrief system, enabling banks to issue covered bonds backed by high-quality mortgage portfolios and pass the low funding cost directly to borrowers.
The Department of Housing and Urban Development (HUD) (www.hud.gov) could expand FHA loan programs with reduced mortgage insurance premiums (MIPs) and increased loan limits for first-time buyers.
NEW BANKING REGULATIONS AND FIXED RATE REQUIREMENTS
Congress could enact legislation establishing maximum allowable mortgage interest rate caps tied to a benchmark (e.g., the 10-year Treasury yield plus a maximum spread of 1.5 to 2 percentage points), similar to usury law frameworks in other countries.
The Consumer Financial Protection Bureau (CFPB) (www.consumerfinance.gov) could issue new regulations requiring greater price transparency in mortgage lending, mandating that lenders disclose the full cost breakdown of rates including the components attributable to lender profit margins, risk premiums, and securitization costs.
The Office of the Comptroller of the Currency (OCC) (www.occ.gov) and the Federal Deposit Insurance Corporation (FDIC) (www.occ.gov) could revise capital adequacy rules so that mortgage lending against primary residences carries a lower risk weight, reducing the capital cost to banks of holding mortgage assets and thus enabling lower rates. (www.fdic.gov)
The Federal Housing Administration (FHA) (www.hud.gov) could introduce a new subsidized fixed-rate mortgage product at below-market rates for first-time buyers with incomes below 120% of the area median income.
CONGRESSIONAL LEGISLATION
Congress could enact comprehensive housing finance reform legislation. This legislation should:
(1) Establish a U.S. Covered Bond Act modeled on European frameworks;
(2) Create a new National Mortgage Interest Reduction Fund, capitalized at $50 billion, to provide below-market rate loans through community development financial institutions (CDFIs) and credit unions;
(3) Restore and expand the mortgage interest deduction under the Internal Revenue Code to provide a tax credit (not merely a deduction) equivalent to 20% of mortgage interest paid for primary residences valued below $750,000;
(4) Direct the U.S. Treasury to issue special housing bonds at below-market yields, with proceeds exclusively used to fund low-rate mortgages through government-chartered entities.
STATE AND LOCAL GOVERNMENT ACTIONS
State housing finance agencies (HFAs) in each state could expand their below-market-rate mortgage bond programs. States such as California (CalHFA) (www.calhfa.ca.gov), New York (NYHFA) (www.calhfa.ca.gov), and Texas (TDHCA) (www.calhfa.ca.gov) could each commit dedicated bond issuance for first-time buyer mortgages at rates at least 150 basis points below prevailing market rates. (hcr.ny.gov) (www.tdhca.state.tx.us)
Local governments could adopt policies reducing housing construction costs through streamlined permitting, inclusionary zoning, and infrastructure cost reductions, thereby increasing housing supply and reducing the underlying pressure on home prices and mortgage demand.
PRIVATE SECTOR AND INDIVIDUAL ROLES
Large institutional investors, including pension funds (CalPERS, TIAA) and insurance companies, could be encouraged through regulatory incentives to invest in social housing bonds and MBS backed by affordable housing mortgages, increasing market demand for these securities and compressing their yields.
Community Development Financial Institutions (CDFIs) could be expanded and capitalized to serve underserved borrowers with below-market rates.
Individual homebuyers could be encouraged through a new federal financial literacy program administered by the CFPB to shop multiple lenders, consider adjustable-rate periods when appropriate, and use HUD-certified housing counselors (www.hud.gov) before committing to a mortgage product.
Section 4: References
References for Section 2:
Bank of Nippon (BoJ) (www.boj.or.jp)
Nippon Housing Finance Agency (JHF) (www.jhf.go.jp)
Swiss National Bank (SNB) (www.snb.ch)
Swiss Financial Market Supervisory Authority (FINMA) (www.finma.ch)
Finanstilsynet (Danish FSA) (www.finanstilsynet.dk)
Danmarks National bank (www.nationalbanken.dk)
Danish Mortgage Banks Federation (Realkreditraadet) (www.realkreditraadet.dk)
Finnish FIN-FSA (Finanssivalvonta) (www.finanssivalvonta.fi)
Housing Finance and Development Centre of Suomi (ARA) (www.ara.fi)
Riksbank (Swedish Central Bank) (www.riksbank.se)
Swedish FSA (Finansinspektionen) (www.fi.se)
Swedish Housing Board (Boverket) (www.boverket.se)
De Nederlandsche Bank (DNB) (www.dnb.nl)
Dutch National Mortgage Guarantee (NHG) (www.nhg.nl)
KfW Bank (Deutschland) (www.kfw.de)
German Pfandbrief Banks Association (vdp) (www.pfandbrief.de)
BaFin (Deutschland) (www.bafin.de)
Austrian FMA (www.fma.gv.at)
Austrian National Bank (OeNB) (www.oenb.at)
References for Section 3:
Federal Reserve Board of Governors (www.federalreserve.gov)
Federal Housing Finance Agency (FHFA) (www.fhfa.gov)
Fannie Mae (www.fanniemae.com)
Freddie Mac (www.freddiemac.com)
U.S. Department of Housing and Urban Development (HUD) (www.hud.gov)
Consumer Financial Protection Bureau (CFPB) (www.consumerfinance.gov)
Office of the Comptroller of the Currency (OCC) (www.occ.gov)
Federal Deposit Insurance Corporation (FDIC) (www.fdic.gov)
California Housing Finance Agency (CalHFA) (www.calhfa.ca.gov)
New York State HCR (NYHFA) (hcr.ny.gov)
Texas Department of Housing and Community Affairs (TDHCA) (www.tdhca.state.tx.us)
HUD Housing Counseling Program (www.hud.gov)
U.S. Treasury Department (home.treasury.gov)
Organisation for Economic Co-operation and Development (OECD) Housing Finance Policy (www.oecd.org)
Section 5: U.S. Organizations Advocating to Improve Mortgage Interest Rates
| Organization Name | Contact Information | Primary Activity in This Area |
|---|---|---|
| Federal Reserve System |
www.federalreserve.gov (202) 452-3000 |
U.S. central bank whose federal funds rate directly influences mortgage rates through its effect on the cost of funds for lenders and its signaling of future interest rate expectations. Fed purchases of mortgage-backed securities (quantitative easing) directly lower mortgage rates by increasing demand for MBS, as demonstrated in 2009-2014 when Fed MBS purchases drove 30-year mortgage rates to historic lows. |
| Fannie Mae (Federal National Mortgage Association) |
www.fanniemae.com (202) 752-7000 |
Government-sponsored enterprise purchasing and guaranteeing mortgage-backed securities to ensure a consistent, liquid market for mortgage credit that keeps rates lower than they would otherwise be. Fannie Mae's secondary market functions — purchasing conforming mortgages from lenders and packaging them into MBS — are the primary mechanism keeping fixed-rate mortgage rates tied to Treasury yields rather than individual lender funding costs. |
| Freddie Mac (Federal Home Loan Mortgage Corporation) |
www.freddiemac.com (703) 903-2000 |
Government-sponsored enterprise that purchases and securitizes mortgages, publishing the weekly Primary Mortgage Market Survey — the most widely cited measure of U.S. mortgage rates. Freddie Mac's competition with Fannie Mae in the secondary market narrows lender spreads, contributing to lower mortgage rates for borrowers. |
| Urban Institute — Housing Finance Policy Center |
www.urban.org (202) 833-7200 |
Research center producing analyses of mortgage market dynamics, credit availability, and housing finance policy reform that affect mortgage interest rates. Publishes the Housing Finance Policy Center Chart Book documenting mortgage rate trends and the Credit Availability Index measuring tightness of mortgage credit, informing policy debates on mortgage market reform. |
| Mortgage Bankers Association (MBA) |
www.mba.org mba@mba.org (202) 557-2700 |
National trade association representing the real estate finance industry, publishing the weekly Mortgage Applications Survey — the most timely indicator of borrower response to mortgage rate changes. Advocates for housing finance policies — Fannie/Freddie reform, FHA premium reductions, and rural lending programs — that expand mortgage credit availability and reduce the spreads lenders charge above Treasury yields. |
| Federal Housing Finance Agency (FHFA) |
www.fhfa.gov (202) 649-3800 |
Federal regulator and conservator of Fannie Mae and Freddie Mac, setting policies that directly affect the functioning of the secondary mortgage market and mortgage rates. FHFA's conforming loan limits, guarantee fee levels, and capital requirements for the GSEs directly affect the spreads between Treasury yields and consumer mortgage rates. |
| National Association of Realtors (NAR) |
www.nar.realtor 1-800-874-6500 |
Professional organization of 1.5 million real estate professionals advocating for housing policies that maintain accessible mortgage financing, including the mortgage interest deduction and GSE reform that keeps rates low. Publishes the Existing Home Sales and Housing Affordability Index that document how mortgage rate movements affect housing market activity and affordability. |
Section 6: Individuals Advocating to Improve Mortgage Interest Rates
| Name, Title & Contact | Selected Publications on Mortgage Interest Rates |
|---|---|
| Ben S. Bernanke, PhD Distinguished Fellow, Brookings Institution; Former Chair, Federal Reserve; Nobel Laureate |
(1) "The Federal Reserve's Balance Sheet: An Update," Federal Reserve Speech, 2009 — Explained the Federal Reserve's unprecedented policy of purchasing mortgage-backed securities to directly lower long-term mortgage rates, the strategy that drove 30-year rates below 4% for the first time.. (2) "Monetary Policy Since the Onset of the Crisis," Federal Reserve Bank of Kansas City Speech, 2012 — Assessed the effectiveness of Fed MBS purchases in reducing mortgage rates, providing the framework for understanding how central bank policy tools directly affect the mortgage market.. (3) "The Courage to Act: A Memoir of a Crisis and Its Aftermath," W.W. Norton, 2015 — Documented the decision-making behind quantitative easing programs that lowered mortgage rates to historic levels, explaining the transmission mechanism from Fed policy to consumer borrowing costs.. |
| Susan M. Wachter, PhD Richard B. Worley Professor of Financial Management and Professor of Real Estate, The Wharton School, University of Pennsylvania wachter@wharton.upenn.edu |
(1) "The Housing Finance Revolution," Federal Reserve Bank of Kansas City, 2010 — Analyzed how the transformation of mortgage finance — from portfolio lending to securitization — changed the determinants of mortgage interest rates and the policy levers available to influence them.. (2) "Why Is There Government Involvement in Housing Finance?," Journal of Real Estate Finance and Economics, 2010 — Provided the theoretical case for government intervention in mortgage markets as a tool for keeping mortgage rates lower than they would be in purely private markets, informing the policy debate on GSE reform.. (3) "Housing Finance Policy in the Wake of the Financial Crisis," Brookings Institution Press, 2015 — Proposed a post-crisis housing finance reform framework that maintains government support for the 30-year fixed-rate mortgage as the instrument that keeps long-term mortgage rates accessible.. |
| W. Scott Frame, PhD Research Advisor, Federal Reserve Bank of Atlanta; Mortgage Finance Researcher scott.frame@atl.frb.org |
(1) "Federal Home Loan Bank Advances and Commercial Bank Portfolio Composition," Journal of Financial Services Research, 2007 — Analyzed how Federal Home Loan Bank lending to member institutions affects their mortgage pricing, documenting a policy mechanism for reducing retail mortgage interest rates.. (2) "Mortgage Finance in the United States," Annual Review of Financial Economics, 2015 — Comprehensive analysis of the U.S. mortgage market structure and how government policy — through GSEs, FHA, and the Fed — shapes the interest rates available to homebuyers.. (3) "The Failure of Supervisory Stress Testing: Fannie Mae, Freddie Mac, and OFHEO," Federal Reserve Bank of Atlanta Working Paper, 2008 — Analyzed regulatory failures that led to GSE insolvency and proposed reforms to housing finance regulation that maintain the GSEs' role in keeping mortgage rates low while managing systemic risk.. |
| Laurie S. Goodman, PhD Founder and Co-Director, Housing Finance Policy Center, Urban Institute lgoodman@urban.org |
(1) "The Future of the Mortgage Market and the Housing Enterprises," Economic Policy Review / Federal Reserve Bank of New York, 2015 — Proposed a reformed housing finance system preserving government backing of the 30-year fixed-rate mortgage to maintain the mortgage rate stability that supports housing affordability.. (2) "Mortgage Access Is Tighter Than It Needs to Be: Overly Tight Credit Is Costing Homebuyers," Urban Institute Housing Finance Policy Center, 2018 — Documented that overly tight mortgage underwriting standards add basis points to effective mortgage rates for creditworthy borrowers and proposed credit box normalization to lower effective rates.. (3) "Quantifying the Tightness of Mortgage Credit and Its Macroeconomic Impact," Urban Institute Housing Finance Policy Center, 2020 — Estimated the magnitude of excess mortgage credit tightness and its effect on housing markets, informing policy proposals to lower effective mortgage borrowing costs through underwriting reform.. |
| Edward J. DeMarco President, Housing Policy Council; Former Acting Director, Federal Housing Finance Agency |
(1) "Reforming Housing Finance in America: Where Are We and Where Could We Go?," Housing Policy Debate, 2014 — Articulated the FHFA's reform framework for reducing government footprint in mortgage markets while maintaining the government support that keeps mortgage rates lower than a purely private market would achieve.. (2) "The Future of Fannie Mae and Freddie Mac: Administrative Reform of the GSEs," Milken Institute Center for Financial Markets, 2019 — Proposed a path for GSE reform that preserves the benefits of government backing — lower mortgage rates — while reducing taxpayer exposure to mortgage market risk.. (3) "Guarantee Fee Policy and Mortgage Interest Rates," Federal Housing Finance Agency Report, 2013 — Analyzed the direct relationship between FHFA-set guarantee fees and consumer mortgage interest rates, showing how regulatory pricing decisions translate into rate differences for homebuyers.. |
| Benson Durham, PhD Managing Director, Piper Sandler; Former Federal Reserve Board Researcher |
(1) "Monetary Policy and Long-Term Interest Rates: A Cross-Country Assessment," Federal Reserve Board Working Paper, 2006 — Estimated the relationship between Federal Reserve policy and long-term mortgage rates, quantifying how changes in the federal funds rate transmit to consumer borrowing costs.. (2) "The Term Structure of Interest Rates and Its Information Content," Federal Reserve Board Working Paper, 2003 — Analyzed the yield curve as a predictor of future short rates, informing models used to forecast mortgage rates and design forward guidance policies that manage long-term borrowing costs.. (3) "Financial Stability and the Federal Reserve's Large-Scale Asset Purchases," Federal Reserve Board Working Paper, 2011 — Estimated the mortgage rate reduction achieved through Federal Reserve MBS purchase programs, quantifying the magnitude of the policy tool used to lower mortgage rates during and after the financial crisis.. |
| Dwight M. Jaffee, PhD Willis Booth Professor Emeritus of Banking, Finance, and Real Estate, Haas School of Business, UC Berkeley jaffee@haas.berkeley.edu |
(1) "The Role of the Government in the Mortgage Market: Historical Origins and Current Challenges," Housing and Financial Stability Conference, FRB Chicago, 2010 — Analyzed the historical evolution of government's role in keeping mortgage rates low and proposed a reformed post-GSE market structure preserving the 30-year fixed-rate mortgage.. (2) "Controlling the Risks of Fannie Mae and Freddie Mac," Journal of Financial Services Research, 2002 — Proposed regulatory capital requirements for the GSEs sufficient to protect the government while maintaining their mission of keeping mortgage rates below what private markets would offer.. (3) "Mortgage Market Design," Housing Policy Debate, 2015 — Analyzed the institutional features of mortgage market design — secondary market structure, prepayment risk, and interest rate risk — that determine the level and accessibility of long-term fixed mortgage rates.. |
Frequently Asked Questions
Why are US mortgage rates so much higher than other countries?
The Federal Reserve raised its benchmark federal funds rate from near 0% to over 5.25% between March 2022 and July 2023 to combat the highest inflation in four decades, directly pushing mortgage rates to approximately 6.81% in 2023. Unlike top-ranked nations, the US also lacks government-administered covered bond markets, broad mortgage interest rate subsidies, or a nationalized low-rate mortgage institution.
Where does the United States rank globally for lowest mortgage interest rates?
The United States ranks 28th out of the top 35 countries with the lowest mortgage interest rates as of 2023. The average 30-year fixed mortgage rate was approximately 6.8%, compared to rates of 1.5% to 3.0% in the highest-ranked nations.
How does Japan keep its mortgage rates so low?
Japan keeps mortgage rates low through a combination of the Bank of Japan maintaining near-zero or negative benchmark interest rates since the 1990s and the Japan Housing Finance Agency (JHF) administering the Flat 35 program, which offers fixed-rate 35-year mortgages below market rates. Japan also provides a housing loan tax deduction allowing borrowers to deduct up to 0.7% of their outstanding loan balance annually from income taxes.
What is a covered bond market and could it lower US mortgage rates?
A covered bond market is a government-regulated system where banks issue bonds backed by mortgage loans, providing lenders with cheaper funding that can be passed on to borrowers as lower rates. Countries like Denmark and Germany use covered bond markets extensively, and establishing a similar US framework could help reduce mortgage borrowing costs for American homeowners.
What role does a country's central bank play in setting mortgage interest rates?
A central bank's benchmark interest rate directly influences the cost at which commercial banks borrow money, which in turn affects the mortgage rates they offer consumers. When central banks like Switzerland's SNB maintain very low or negative rates, as they have to control currency appreciation, mortgage rates for homebuyers remain correspondingly low.
What policy options could the US adopt to lower mortgage interest rates?
Policy options include the Federal Reserve lowering its benchmark federal funds rate as inflation stabilizes, creating a government-sponsored covered bond market, expanding the role of agencies like Freddie Mac and Fannie Mae to subsidize rates more broadly, or establishing a dedicated low-rate mortgage institution similar to Japan's Housing Finance Agency. Coordinating fiscal tools such as mortgage interest tax deductions with monetary policy could also reduce the effective cost of borrowing for American homebuyers.
About the Author
Ronald Bonfilio has devoted his career to public service spanning more than five decades. His service began with the U.S. Army from 1966 to 1968, where he conducted medical laboratory research at Fort Detrick and at the Walter Reed Army Institute of Research. He subsequently held a distinguished series of federal positions, including roles with the National Cancer Institute, the National Institutes of Health, the U.S. Agency for International Development (Vietnam), the Special Inspector General for Iraq Reconstruction, and the U.S. State Department (Iraq), where he served as a Senior Economic Advisor and Agricultural Advisor. He also served 15 years with the U.S. Government Accountability Office as a Program Analyst and Auditor.
Ronald Bonfilio holds a degree in Economics from the University of Maryland, and degrees in Chemistry and a Master of Business Administration from the University of Massachusetts. He is a former Certified Public Accountant.