Does a Federal Rate Cut Mean Mortgage Rates Will Go Down?

If you’re thinking about or in the process of buying a home, the phrase “interest rates” is probably more likely to catch your attention. And leading up to an announcement by the Federal Reserve, that phrase shows up in headlines a lot. If you’re hearing about a cut to Fed rates, here’s a simple explanation of what you need to know about its effect on mortgage rates. 

The Cause and Effect Misconception

The relationship between Federal rate cuts and easing of mortgage interest rates is not exactly cause-and-effect. Instead, the anticipation of rate cuts plays a much more significant role in falling mortgage rates. The market tries to pinpoint the depth and duration of a Fed cut before it happens. 

What Does This Mean for Buyers? 

If you’re currently waiting to apply for home financing until after the Federal Reserve makes a cut, it’s important to understand that the decrease in mortgage rates is likely already happening. Take, for example, the rate cut in September of 2024. When the news broke in late July that there was a good chance of a cut to Fed rates, average 30-year fixed mortgage rates immediately began to fall. Every week, leading up to the official announcement, mortgage rates inched down, resulting in an overall decrease from 6.78% to just 6.09%. 

Why You Don’t Want to Wait

In the second week following the announcement of the Fed rate cut in September of 2024, mortgage rates began to steadily inch back up until November. In other words, once the Fed rate cut happened, the mortgage rate cycle started over again. If you’re in the market for a home and there is a Federal Reserve announcement coming up, it’s a good time to talk to a mortgage banker. Reach out!