how will rate cut affect mortgage rates

A rate cut by the Federal Reserve generally leads to a modest decline in mortgage rates, but the effect is not immediate or direct. The Fed cuts its benchmark short-term interest rate, which influences borrowing costs between banks, but mortgage rates are tied more closely to long-term bond yields like the 10-year Treasury note. Because markets often anticipate rate cuts, mortgage rates may already reflect expected Fed action before the official cut, limiting the visible impact after the cut is announced. Mortgage rates have already started to decline in anticipation of the September 2025 rate cut, with 30-year fixed mortgage rates dropping to around 6.35%. However, experts caution that mortgage rates may not drop significantly further immediately, and there is a risk that they might even increase if inflation expectations rise or if bond yields go up. A series of Fed rate cuts over time could gradually push mortgage rates down more noticeably. In summary, a Fed rate cut tends to reduce mortgage rates indirectly and gradually, with markets often pricing in the cut beforehand. Other factors like inflation, bond market behavior, and overall economic conditions play significant roles in determining mortgage rates beyond Fed policy.