The Fed Cuts Interest Rates — Here’s How Mortgage Rates Actually Respond

The full article continues below these offers from our partners.

The Federal Reserve lowered its benchmark interest rate, but mortgage rates rose

The day before the Fed cut interest rates last week, 30-year mortgage interest rates fell to their lowest level in nearly 13 months — 6.37% on Tuesday. But after the Fed’s announcement on Wednesday afternoon, the headline average rose a few basis points, then jumped another 12 points to 6.49% on Thursday, where it has held steady since.

This comes despite the Federal Reserve cutting its benchmark interest rate by a quarter of a percentage point. While many homebuyers and homeowners looking to refinance were hoping for some interest rate relief, mortgage rates have risen instead.

Mike Fratantoni, chief economist at the Mortgage Bankers Association (MBA), said he’s not surprised. “Since the market has been anticipating these moves, MBA does not expect any significant changes in mortgage rates as a result,” he said.

It’s a reminder that the Fed’s moves don’t directly determine mortgage rates.

What really determines mortgage rates

It’s a common assumption: When the Fed lowers interest rates, mortgage rates should fall. But that’s not how it works. The Fed’s benchmark interest rate mainly affects short-term borrowing costs – such as credit cards, personal loans, and bank savings returns – and has a much smaller impact on long-term loans such as mortgages.

Thirty-year mortgage rates are shaped by a broader mix of forces, including inflation expectations, housing demand, and overall economic conditions. More importantly, they tend to follow the bond market — especially the 10-year Treasury yield, which greatly influences lenders’ costs.

That’s why mortgage rates move independently of the Fed’s decisions, and sometimes in the opposite direction. As Hannah Jones, senior economic research analyst at Realtor.com, noted in a commentary on Thursday, “Federal Reserve Chair Jerome Powell emphasized that another rate cut in December is not guaranteed. In response, the 10-year Treasury yield rose, suggesting that mortgage rates could face renewed upward pressure in the coming weeks.”

This same pattern has been repeated several times in the past year: Each time the Fed lowered interest rates, mortgage interest rates rose instead. It’s too early to tell if that will hold up this time, but less than a week after the Fed’s latest cut, there is still no sign of the interest rate easing that many buyers had been hoping for.

Ultimately, it’s nearly impossible to predict where mortgage rates will go in the short term. They do not respond to a single policy move, but rather to a network of changing factors across the economy.

What this means for homebuyers and homeowners

For buyers, the message is familiar but worth repeating: It’s almost impossible to time the mortgage market. Interest rates can rise or fall for reasons that have nothing to do with the Fed, so waiting for the “perfect” moment could mean missing out on the right home. If you find an option that fits your budget and long-term plans, acting when you’re financially ready is often the smartest move.

For homeowners, although rates haven’t dropped as much as many had hoped, refinancing is still worth exploring if your mortgage is in the high 7% or 8% range. The goal is to lock in a new interest rate low enough to offset the costs of refinancing. A simple way to know if it makes sense is to calculate how long it will take to break even. If it takes several years to recoup your refinancing fees with lower monthly payments — but you can move before then — staying put may be the wisest option.

Ultimately, no one can predict exactly where mortgage rates will go from here. That’s why the best strategy, for both buyers and homeowners, is to make decisions based on your finances, not the Fed’s next move.

How we track the best mortgage rates

The above national and local averages are provided as is through the Zillow Mortgage API, assuming a loan-to-value (LTV) ratio of 80% (i.e. a down payment of at least 20%) and an applicant’s credit score in the range of 680-739. The resulting rates represent what borrowers should expect when receiving quotes from lenders based on their qualifications, which may differ from advertised teaser rates. © Zillow, Inc., 2025. Use subject to Zillow’s Terms of Use.