When talking with people looking to buy their first home in Hilo, I often encounter those who find the term "mortgage rates" unfamiliar. It may sound complicated, but simply put, it refers to the interest rate applied to the money borrowed from a bank when purchasing a home.

Let's break down how this interest rate is determined. The first factor is the yield on 10-year Treasury bonds. This is the interest rate applied when the government borrows money for ten years, and when it rises, mortgage rates tend to follow suit. The second factor is the federal funds rate set by the Federal Reserve, commonly known as the Fed. While the Fed's rate changes do not directly set mortgage rates, they influence the market's expectations and reactions. The third factor is inflation, or the rate of price increases.

• 10-year Treasury bond yield
• Federal Reserve's interest rate
• Inflation (price increase rate)
• MBS (Mortgage-Backed Securities) market supply and demand
• Personal credit score, DTI, down payment

If you come across another unfamiliar term, MBS, or Mortgage-Backed Securities, think of it as bonds that banks sell to investors, which are backed by the mortgages they issue. When demand in this market is high, rates go down, and when demand decreases, rates go up.

As of 2026, the average rate for a 30-year fixed mortgage is observed to be in the mid-6% range. The 15-year fixed rate tends to be about 0.5 to 0.75 percentage points lower. In simple terms, the shorter the loan term, the lower the interest rate, but the monthly payments will be higher.

For those unfamiliar with ARM, or adjustable-rate mortgages, think of it this way: for the first few years, it offers a lower rate than fixed-rate loans, and after that, the rate fluctuates based on market conditions. A 5/1 ARM means the rate is fixed for the first five years and then adjusts annually thereafter. If you plan to stay in your home for a long time, a 30-year fixed mortgage, where the rate remains constant, may be more comfortable, while an ARM's initial low rate can be beneficial if you plan to move within a few years.

Let's also clarify credit scores. If your credit score is above 740, banks often offer favorable rates, while a lower score in the 620 range can result in rates that are nearly 1 percentage point higher, even on the same day. Additionally, DTI, which is the ratio of debt to income, and how much you can put down as a down payment are also considered.

Hilo, located on the Big Island, has lower housing prices compared to Honolulu, making the down payment burden relatively lighter. However, depending on the lava zone classification, insurance requirements and premiums can vary significantly, so it's advisable to check this with your lender when exploring mortgage options.

If you are a Korean family looking to settle in Hilo, don't be intimidated by unfamiliar terms; I recommend asking your lender directly to clarify each one. Comparing estimates from at least three or four lenders will provide you with peace of mind. Since rates may fluctuate slightly based on inflation and the Fed's policies, take your time and prepare carefully without rushing.