Why a Federal Rate Cut Doesn’t Mean Your Mortgage Rate Will Drop

When the Federal Reserve announces a rate cut, we often hear the question: “Does this mean my mortgage rate will go down too?” It’s a great question, and the answer might surprise you.

Here’s what actually happens: Fed rate cuts don’t directly translate to mortgage rate drops. A 0.25% Fed cut your mortgage rate doesn’t automatically mean your mortgage rate falls by 0.25%. In fact, mortgage rates sometimes move in the opposite direction. During past Fed cuts, mortgage rates have risen because of market expectations around inflation and economic growth.

The Federal Funds Rate vs. Mortgage Rates

Think of it this way: the Federal Reserve controls one set of rates, and mortgage rates are part of a different system.

The Fed sets the federal funds rate. This affects things like credit card rates, car loans, and what banks charge each other. These are short-term rates that can change quickly.

Mortgage rates, on the other hand, follow something called the 10-year Treasury yield. This is basically what investors are willing to accept for lending money over a long period. Since mortgages are 15 or 30-year commitments, they track with these longer-term investments.

What Actually Moves Mortgage Rates?

Mortgage rates move based on what investors think will happen over the next decade. They consider questions like:

• Will the economy stay strong or weaken?
• Will inflation stay under control?
• What will interest rates look like in 5 or 10 years?

When there's uncertainty about the economy, investors often move money into safer investments like Treasury bonds. This can actually push mortgage rates down, even if the Fed hasn't changed anything. When the economy looks strong and inflation concerns rise, the opposite can happen – mortgage rates may go up.

This is why a Fed rate cut doesn't guarantee lower mortgage rates. The 10-year Treasury is already looking ahead and pricing in what it expects to happen.

What This Means for You

The bottom line: trying to predict when mortgage rates will hit their lowest point is nearly impossible. Here's what we recommend instead:

Focus on the rate you can get today. We're helping clients drop their rates by 1% or more right now. Would you risk your rate going up by 0.25% while waiting for it to potentially drop by 0.125%? For most people, that's not worth the gamble.

Get your paperwork ready. When you have your application submitted and ready to go, you're in the best position to lock in a good rate when you see it.

Know what you're trying to accomplish. Are you looking to lower your monthly payment? Pay off your mortgage faster? Access cash from your home's equity? Your goals matter more than chasing the absolute lowest rate.

Be Ready to Act

Having your application complete puts you in the best position when rates move favorably. When the rate you want appears, you’ll be ready to lock it in.

At Park Bank, we’re here to help you make confident decisions about your next step. If you’re thinking about refinancing or purchasing a home, check out our Custom Quote Tool. Simply enter your loan details and you’ll receive personalized updates tied to current mortgage rates. It’s an easy way to stay informed and be ready when the right rate comes along.