Why Your Mortgage Rate Might Not Drop After the Fed Slashes Rates

By William “Bill” Boswell

Bill is widely known as one of New Jersey’s most sought after real estate agents and is a sales associate of Keller Williams Prosperity Realty.

Have you ever noticed that when the Fed changes its rate, mortgage rates don’t always follow? It can be confusing at first, but understanding how mortgage rates are determined makes it a lot clearer. The key point is that mortgage rates aren’t directly tied to the Fed rate.

Mortgage rates are primarily influenced by the yield on the 10-year Treasury. This is a forward-looking measure, which reflects where rates are headed rather than what’s happening right now. Mortgage rates are essentially a prediction of future market conditions, while the Fed rate is adjusted based on what’s happening now.

Take the most recent Fed rate change as an example. Mortgage rates had already moved based on Treasury yields, which showed what investors expected the Fed to do. When the Fed finally made its move, mortgage rates didn’t have anything new to react to. That’s why mortgage rates sometimes move in the opposite direction or don’t immediately follow the Fed.

The takeaway for consumers is that while there’s some connection between the Fed rate and mortgage rates, it isn’t direct. Don’t assume that a Fed rate drop automatically leads to lower mortgage rates. The last Fed adjustment illustrates this perfectly: the rate went down, but mortgage rates almost immediately began to rise.

If you want to dive deeper into this topic, or anything related to buying or selling a home, feel free to reach out. You can call me anytime at 973-224-4605 or send me an email at bill@northjerseyluxury.com. I’m here to clear any doubts and confusion to help you make better decisions.