Fed’s Quarter-Point Rate Cut Sends Mortgage Rates Lower

Lead The Federal Reserve on Wednesday trimmed its benchmark rate by 25 basis points, prompting average 30-year mortgage rates to slip to 6.26% and spurring a surge in refinance activity nationwide.

Nut Graf This marks the Fed’s first rate reduction since December and reflects growing concerns over weakening employment. While fixed-rate mortgages require refinancing to benefit, adjustable-rate loans and home-equity lines of credit are already registering lower payments.

Immediate Impact on Mortgages

• 30-year fixed: Average rate fell from 6.35% to 6.26% this week.
• Refinance boom: Refinancing applications reached nearly 60% of all mortgage applications, a peak not seen since January 2022.

Why Mortgage Rates Aren’t Directly Set by the Fed

Mortgage rates track the 10-year Treasury yield rather than the federal funds rate. Bond investors’ views on inflation and growth drive Treasury yields, which in turn influence lenders’ pricing of home loans for investors.

Who Benefits Most

• Adjustable-rate mortgage holders: Payments reset lower almost immediately.
• Home-equity borrowers: HELOC interest rates, tied to the prime rate, should drop by roughly 0.25 percentage point within weeks.
• Prospective refinancers: Homeowners with fixed mortgages can secure lower rates by refinancing, though closing costs may offset some savings.

Caveats and Outlook

Economists caution that this cut does not guarantee sustained declines in mortgage rates. If inflation proves stickier than expected or if bond yields rebound, mortgage rates could rise again despite further Fed cuts projected later this year.

Looking Ahead

Fed officials forecast two more quarter-point cuts before year-end, but rate-cut expectations already discounted by markets could limit further mortgage-rate relief. Borrowers are advised to monitor Treasury yields and lock in favorable rates swiftly.