What the Interest Rate Cut Means for Homebuyers

What the Fed’s Rate Cut Means for Homebuyers Right Now

On September 17, the Federal Reserve cut its short-term interest rate by a quarter of a percentage point — the first cut this year. While that news made headlines, many homebuyers quickly wondered: Will my mortgage rate go down, too? The answer is… maybe, but not always in the way you’d expect.

The Fed vs. Mortgage Rates: What’s the Difference?

The federal funds rate is the rate banks charge each other to borrow money overnight. It’s not the same as the mortgage rate you’ll be offered by a lender. Mortgage rates are influenced more by the bond market, specifically the 10-year Treasury yield, and by overall economic conditions.

That means when the Fed cuts rates, mortgage rates don’t automatically fall. In fact, the 30-year fixed-rate mortgage averaged 6.26% the week of the announcement, according to Freddie Mac. That’s down from earlier this summer but still higher than the 6.09% average a year ago.

Why Buyers May Not Feel a Big Change (Yet)

Markets often “price in” a Fed cut before it happens. In other words, lenders and investors already anticipated the move, which is why mortgage rates had been trending downward before the official announcement. As Bill Banfield, chief business officer at Rocket Mortgage, explains:

“Mortgage rates may stay relatively flat in the short term, since markets had already priced in this cut.”

So while you might not see a dramatic drop in your monthly payment just because of the Fed’s move, the overall trend of easing mortgage rates is still encouraging for buyers.

Adjustable-Rate Mortgages Are Getting More Attention

One place the Fed’s decision could make a noticeable difference is in adjustable-rate mortgages (ARMs). Because ARMs are tied to shorter-term rates, borrowers may benefit more directly from lower costs.

The Mortgage Bankers Association (MBA) reports that ARMs now make up about 13% of all mortgage applications — the highest level since 2008. Today’s ARMs look different from the risky loans of the past. Most have initial fixed periods of five, seven, or ten years, which helps protect buyers from early payment shocks. On average, ARMs are running about 0.75% lower than a traditional 30-year fixed loan.

For buyers who expect to move or refinance within that initial period, ARMs can be a smart way to save money up front.

Buyers Are Responding — But Sales Haven’t Caught Up

Lower rates have encouraged more buyers to start the process. MBA data shows purchase applications are up 3% week-over-week and nearly 20% compared to last year. That’s a strong sign of renewed interest.

However, more applications don’t immediately translate into more closed sales. Existing-home sales were up just 2% in July month-over-month, and only 0.8% higher than a year earlier, according to the National Association of REALTORS®. Inventory shortages and affordability challenges are still big factors in the market.

What This Means If You’re House Hunting

If you’re considering buying now, here are a few takeaways:

• Don’t expect an overnight rate drop. Mortgage rates may move gradually, not dramatically, after Fed decisions.

• Explore your options. Compare fixed-rate and adjustable-rate loans to see which fits your timeline and budget.

• Shop around. Rates can vary significantly between lenders, and even a small difference adds up over the life of your loan.

• Be ready to act. With more buyers entering the market, competition could heat up if rates keep trending down.

The Bottom Line

The Fed’s September rate cut may not deliver instant savings for every buyer, but it does reinforce a downward trend in borrowing costs. Whether you lock in a fixed rate now or explore an adjustable option, today’s market is creating new opportunities for prepared buyers.

If you’re thinking about making a move, now is the time to talk with a trusted real estate professional and mortgage advisor to map out your best strategy.