There was a customer considering refinancing in Pasadena. They had purchased a home three years ago at a higher interest rate and were curious about how rates are currently formed. Let's break down this question.

The first question this customer asked was where mortgage rates are determined. The answer is the yield on 10-year Treasury bonds. This serves as the benchmark for the cost of funds for lenders. The actual offered rate is then determined by adding the Federal Reserve's benchmark rate, inflation indicators, and the supply and demand situation in the MBS market.

The next question was about the current interest rates. As of the second half of 2026, the average rate for a 30-year fixed mortgage based on Freddie Mac's PMMS is reported to be in the mid to high 6% range. The 15-year fixed rate is about 0.5 to 0.75 percentage points lower, in the low to mid 6% range. Compared to the rate this customer received three years ago, there was a gap, and I advised them to also consider the savings effect against closing costs when refinancing.

To summarize the factors that determine mortgage rates:

• 10-year Treasury bond yield
• Federal Reserve's benchmark rate and monetary policy direction
• Inflation indicators
• MBS market supply and demand situation
• Personal credit score, DTI, down payment ratio

This customer's credit score was in the 720 range. I explained that compared to the 760 and above range, a slightly higher rate might be offered, and compared to the 620-680 range, they would have about a 0.5 to 1 percentage point advantage. I also suggested managing their credit score for a few months to raise it above 760 before proceeding with refinancing as an alternative.

Questions about ARM products followed. ARMs start with a lower rate than fixed rates for the first 5 to 7 years but adjust based on market indicators afterward. Since this customer planned to stay long-term in Pasadena, they concluded that refinancing with a fixed rate was better than taking the risk of rate fluctuations with an ARM.

Pasadena is a region with consistent demand for school districts, so there are many inquiries about long-term purchases and refinancing. I also informed them that for amounts exceeding the conforming loan limit, jumbo loan conditions need to be checked separately, and that a new appraisal process is required for refinancing.

Practical preparation steps for Korean households to consider, whether refinancing or making a new purchase, include checking their credit report first and keeping credit utilization low. Organizing income documentation in advance can shorten the review period. Comparing estimates from multiple lenders is also an essential step.

Future interest rates can be cautiously projected to move gradually based on inflation and employment indicators. I advised this customer to calculate their credit status and the savings effect against refinancing costs rather than trying to predict the exact timing.