{"id":2884,"date":"2025-09-20T04:54:57","date_gmt":"2025-09-20T04:54:57","guid":{"rendered":"http:\/\/ft365.org\/index.php\/2025\/09\/20\/how-the-feds-rate-decisions-move-mortgage-rates-bankrate\/"},"modified":"2025-09-20T04:54:57","modified_gmt":"2025-09-20T04:54:57","slug":"how-the-feds-rate-decisions-move-mortgage-rates-bankrate","status":"publish","type":"post","link":"https:\/\/ft365.org\/index.php\/2025\/09\/20\/how-the-feds-rate-decisions-move-mortgage-rates-bankrate\/","title":{"rendered":"How The Fed’s Rate Decisions Move Mortgage Rates | Bankrate"},"content":{"rendered":"
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The Federal Reserve doesn\u2019t set mortgage rates outright, but its decisions do play a role in the percentages lenders offer would-be homeowners. And even if the Fed keeps its benchmark rate unchanged, mortgage rates can still fluctuate. Here\u2019s how the Fed\u2019s monetary policy affects mortgages and your ability to buy a home.<\/p>\n

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Mortgage Icon<\/title> <\/svg> <\/p>\n
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The Fed’s latest meeting <\/p>\n

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At its meeting on Sept. 16\u201317, the Federal Open Market Committee (FOMC) voted to drop its benchmark interest rate for the first time this year by 0.25 percent. But don\u2019t expect this rate cut to have an immediate impact on mortgage rates, says Stephen Kates, CFP, financial analyst for Bankrate.<\/p>\n

\u201cThe anticipation of a Fed rate cut, which is influenced by signs of a slowing economy, has already done more to lower Treasury and mortgage rates than the actual cut is likely to,\u201d Kates says.<\/p>\n

In fact, the day after the announcement, Sept. 18, the yield on the 10-year Treasury bond rose, topping out near 4.13 percent. This yield is more directly tied to 30-year rates than the federal funds rate. However, that\u2019s not the only route for mortgage rates to decline.<\/p>\n

\u201cIf the spread between 10-year yields and 30-year mortgage rates continues to decline, we could see 30-year mortgage rates with mid-5 handles soon,\u201d says Ken Johnson, Walker Chair of Real Estate at the University of Mississippi. \u201cI don\u2019t think we are going to see much lower than 4 percent yield on the 10-year Treasury bond. The gains are going to come from the spread between 30-year rates and 10-year yields narrowing.\u201d<\/p>\n

Whether the Fed cuts rates again this fall will depend on future economic data, as it pursues its dual mandate of maintaining employment and taming inflation. The FOMC meets next on October 28 and 29.<\/p>\n<\/p><\/div>\n<\/p><\/div>\n<\/p><\/div>\n

How does a Fed rate cut affect mortgages?<\/h2>\n

The U.S. Federal Reserve sets borrowing costs for shorter-term loans by changing its federal funds rate. This rate dictates how much banks pay each other in interest to borrow funds from their reserves, kept at the Fed on an overnight basis. While this rate isn\u2019t the same as the rate you\u2019ll pay for your mortgage, they are related. As the cost for banks to borrow increases or decreases, the cost for you to borrow tends to follow suit. When the Fed cuts the federal funds rate, it generally encourages lenders to lower interest rates across the board. Similarly, if the Fed raises rates, it\u2019s more likely lenders will do the same.<\/p>\n

For example, in 2022 and 2023, the Fed increased this key interest rate to help calm inflation, hikes that made it more costly for Americans to borrow money or take out credit. However, sometimes mortgage rates seem to ignore the Fed. While the Fed cut the rate three times at the end of 2024, mortgage rates remained relatively high, and even increased.<\/p>\n

That\u2019s because fixed-rate mortgages \u2014 the most popular type of home loan \u2014 don\u2019t mirror the federal funds rate; they track the 10-year Treasury yield. When that goes up or down, fixed-rate mortgage rates do, too. Again, the two rates aren\u2019t exactly the same. Your mortgage rate will be higher than the 10-year yield by an amount known as a spread or margin.<\/p>\n

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Mortgage Icon<\/title> <\/svg> <\/p>\n
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Typically, the gap between the 10-year Treasury yield and the 30-year fixed mortgage rate spans 1.5 to 2 percentage points. For much of 2023 and 2024, the spread grew to 3 percentage points, making mortgages more expensive. The main reason for this was added risk in the marketplace due to rapidly rising rates.<\/p>\n<\/p><\/div>\n<\/p><\/div>\n

Mortgage rates also move due to:<\/p>\n

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  • Inflation:<\/strong> Generally, when inflation picks up, so do fixed interest rates.<\/li>\n
  • Supply and demand:<\/strong> When mortgage lenders have too much business, they raise rates to decrease demand. When business is light, they tend to cut rates to attract more customers.<\/li>\n
  • The<\/strong> secondary mortgage market<\/strong>, where investors buy mortgage-backed securities:<\/strong> Most lenders bundle the mortgages they underwrite and sell them in the secondary marketplace to investors. When investor demand is high, mortgage rates trend a little lower. When investors aren\u2019t buying, rates might rise to attract them.<\/li>\n<\/ul>\n

    The Fed also buys and sells debt securities in the financial marketplace. This helps support the flow of credit, which tends to have an overarching impact on mortgage rates.<\/p>\n

    How the Fed affects adjustable rate mortgages (ARMs)<\/h3>\n

    While fixed-rate mortgages dominate the U.S. residential financing scene, some Americans prefer adjustable-rate mortgages (ARMs), which have variable interest rates that reset annually or semi-annually. The Fed\u2019s moves can affect them more directly.<\/p>\n

    More specifically, the rates on ARMs are often tied to the Secured Overnight Financing Rate, or SOFR. Because the Fed\u2019s rate decisions serve as a basis for savings instruments, raising or lowering the fed funds rate can push the SOFR up or down. ARM rates, in turn, go up or down when the rate resets.<\/p>\n

    All this means that, if the federal funds rate goes up, your ARM rate will increase at the next adjustment.<\/p>\n

    Key Fed moves that impacted mortgage rates<\/h2>\n

    In response to the economic effects of COVID-19, the Fed cut the federal funds rate to near zero. While 30-year mortgage rates didn\u2019t fall to the same degree, they did reach historic lows. The average 30-year mortgage rate bottomed out at 2.97 percent in Feb. 2021, according to Bankrate data.<\/p>\n

    The Fed raised their rate consistently starting in March 2022, as inflation picked up and the U.S. emerged from the pandemic. The federal funds rate reached 5.33 percent in August 2023, where it stayed until the end of September 2024. As the funds rate grew, so did mortgage rates, with the 30-year rate breaching 8 percent in October 2023.<\/p>\n

    Though the Fed cut its rate three times at the end of 2024 \u2014 at its September, October and December meetings, a total of 100 basis points \u2014 mortgage rates remained elevated, often averaging above 7 percent. However, recent economic uncertainty has led to slightly lower rates. For most of the first half of 2025, mortgage rates hovered just below 7 percent. But starting in September, rates fell below 6.5 percent for the first time in 2025.<\/p>\n

    What to consider if you\u2019re getting a mortgage<\/h2>\n

    Regardless of current Federal Reserve policy, the best ways to get the lowest possible mortgage rate are to maintain solid credit, keep your debt low, make as large a down payment as you can and shop around for loan offers.<\/p>\n

    When comparing rates, look at the APR, not just the interest rate \u2014 some lenders advertise low interest rates, but offset them with high fees. Knowing your APR will help you understand your true, all-in cost.<\/p>\n

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    More on the Federal Reserve <\/h3>\n<\/p><\/div>\n
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    The Federal Reserve doesn\u2019t set mortgage rates outright, but its decisions do play a role in the percentages lenders offer would-be homeowners. And even if the Fed keeps its benchmark rate unchanged, mortgage rates can still fluctuate. Here\u2019s how the Fed\u2019s monetary policy affects mortgages and your ability to buy a home. Mortgage Icon The<\/p>\n","protected":false},"author":2,"featured_media":280,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[5],"tags":[],"class_list":["post-2884","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-latest-news"],"featured_image_urls":{"full":["https:\/\/ft365.org\/wp-content\/uploads\/2025\/05\/279-Homes-How-the-Federal-Reserve-affects-mortgage-rates.jpg",1280,720,false],"thumbnail":["https:\/\/ft365.org\/wp-content\/uploads\/2025\/05\/279-Homes-How-the-Federal-Reserve-affects-mortgage-rates-150x150.jpg",150,150,true],"medium":["https:\/\/ft365.org\/wp-content\/uploads\/2025\/05\/279-Homes-How-the-Federal-Reserve-affects-mortgage-rates-300x169.jpg",300,169,true],"medium_large":["https:\/\/ft365.org\/wp-content\/uploads\/2025\/05\/279-Homes-How-the-Federal-Reserve-affects-mortgage-rates-768x432.jpg",640,360,true],"large":["https:\/\/ft365.org\/wp-content\/uploads\/2025\/05\/279-Homes-How-the-Federal-Reserve-affects-mortgage-rates-1024x576.jpg",640,360,true],"1536x1536":["https:\/\/ft365.org\/wp-content\/uploads\/2025\/05\/279-Homes-How-the-Federal-Reserve-affects-mortgage-rates.jpg",1280,720,false],"2048x2048":["https:\/\/ft365.org\/wp-content\/uploads\/2025\/05\/279-Homes-How-the-Federal-Reserve-affects-mortgage-rates.jpg",1280,720,false],"morenews-featured":["https:\/\/ft365.org\/wp-content\/uploads\/2025\/05\/279-Homes-How-the-Federal-Reserve-affects-mortgage-rates-1024x576.jpg",1024,576,true],"morenews-large":["https:\/\/ft365.org\/wp-content\/uploads\/2025\/05\/279-Homes-How-the-Federal-Reserve-affects-mortgage-rates-825x575.jpg",825,575,true],"morenews-medium":["https:\/\/ft365.org\/wp-content\/uploads\/2025\/05\/279-Homes-How-the-Federal-Reserve-affects-mortgage-rates-590x410.jpg",590,410,true],"crawlomatic_preview_image":["https:\/\/ft365.org\/wp-content\/uploads\/2025\/05\/279-Homes-How-the-Federal-Reserve-affects-mortgage-rates-260x146.jpg",260,146,true]},"author_info":{"display_name":"henry","author_link":"https:\/\/ft365.org\/index.php\/author\/henry\/"},"category_info":"Latest News<\/a>","tag_info":"Latest News","comment_count":"0","_links":{"self":[{"href":"https:\/\/ft365.org\/index.php\/wp-json\/wp\/v2\/posts\/2884","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/ft365.org\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/ft365.org\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/ft365.org\/index.php\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/ft365.org\/index.php\/wp-json\/wp\/v2\/comments?post=2884"}],"version-history":[{"count":0,"href":"https:\/\/ft365.org\/index.php\/wp-json\/wp\/v2\/posts\/2884\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/ft365.org\/index.php\/wp-json\/wp\/v2\/media\/280"}],"wp:attachment":[{"href":"https:\/\/ft365.org\/index.php\/wp-json\/wp\/v2\/media?parent=2884"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/ft365.org\/index.php\/wp-json\/wp\/v2\/categories?post=2884"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/ft365.org\/index.php\/wp-json\/wp\/v2\/tags?post=2884"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}