So the Federal Reserve just lowered the federal funds rate again. You've probably seen the headlines. And if you're like most people, you're wondering: does this mean mortgage rates are about to drop?
Here's the short answer: maybe, but don't count on it.
The relationship between the Fed's rate and mortgage rates is way more complicated than most people think. Let's break it down.
What Is the Federal Funds Rate, Anyway?
Think of the federal funds rate as the interest rate banks charge each other for overnight loans. That's it. It's not the rate you'll pay on your mortgage. It's not even close to being the same thing.
The Fed sets this short-term rate to fulfill its dual mandate from Congress: promoting maximum employment and stable prices Federal Reserve Bank of Atlanta. When they lower this rate, they're essentially trying to make it cheaper for banks to borrow money, which theoretically makes it cheaper for everyone else to borrow money too.
The key word there is "theoretically."
So What Happens When the Fed Lowers Rates?
At their most recent meeting on October 29, 2025, the Fed cut rates by a quarter of a percentage point to a range of 3.75% to 4% Federal ReserveFederal Reserve. This was their second consecutive cut this fall.
When the Fed lowers rates, here's what typically happens:
Credit cards and home equity lines of credit respond quickly. These products are tied directly to short-term rates, so you'll see changes pretty fast.
Auto loans and personal loans usually follow. Banks adjust these rates based partly on what it costs them to borrow money, so Fed cuts generally help here.
Mortgages? Well, that's where it gets weird.
The Mortgage Rate Mystery
Here's what catches people off guard: mortgage rates are more strongly linked to longer-term rates like the 10-year Treasury yield than to the federal funds rate Federal Reserve Bank of Atlanta. This is because most people keep their mortgages for seven to ten years, not overnight.
Even though the Fed cut rates three times at the end of 2024—a total of 100 basis points—mortgage rates remained elevated, often averaging above 7 percent Bankrate. In fact, sometimes mortgage rates and the federal funds rate move in completely opposite directions.
Why? Because mortgage rates respond to a whole bunch of other factors:
- Economic growth expectations
- Inflation forecasts
- Government spending and tax policies
- How many people are refinancing their mortgages
- Credit risk in the lending market
- Supply and demand for mortgages
Mike Oddo, CEO of HouseJet, puts it this way: "When the Fed lowers rates, it's definitely a positive signal for the housing market. But it's not the magic wand people think it is. Mortgage rates march to their own drummer, and that drummer is playing a much longer song than the Fed's overnight lending rate. Buyers need to focus on the bigger picture—their personal finances, the local market, and whether a home makes sense for them right now—not just waiting for some perfect rate that might never come."
A Brief History of the Fed and Mortgage Rates
Let's look back to see how these two rates have danced together—or not—over the years.
The 1980s: The federal funds rate hit its highest level ever in December 1980 at 19-20 percent, and mortgage rates spiked to nearly 20 percent as well Bankrate. During this era, they moved pretty closely together.
The Early 1990s: Mortgage rates fell from about 10 percent to 7 percent between 1990 and 1993, yet home values barely budged, rising just 2 percent over four years Center for Retirement Research. Even though rates dropped significantly, the economy was sluggish.
The 2007-2008 Financial Crisis: Rates declined from about 6 percent to 5 percent, but home prices cratered, falling 17 percent as the housing market collapsed Center for Retirement Research. Lower rates couldn't save the housing market from itself.
The COVID-19 Era: In response to the pandemic, the Fed cut the federal funds rate to near zero, and the average 30-year mortgage rate bottomed out at 2.97 percent in February 2021 Bankrate. This time, rates moved together—and home prices exploded.
The Recent Past: When the Fed raised rates consistently starting in March 2022, mortgage rates followed upward, with the 30-year rate breaching 8 percent in October 2023 Bankrate. But when the Fed started cutting in late 2024, mortgage rates didn't follow as dramatically downward.
The pattern? There isn't one. Sometimes they move together. Sometimes they don't. It all depends on what else is happening in the economy.
What Should You Do Right Now?
Don't sit around waiting for the perfect rate to fall from the sky. Here's what actually matters:
Focus on what you can control. Your credit score, your down payment, your debt-to-income ratio—these things have a direct impact on the rate you'll get offered.
Shop around. Individual lenders can offer different rates for mortgages depending on their demand and business needs American Deposits. One lender might be hungry for business while another is turning people away.
Think local. National rate trends are interesting, but your local housing market has its own dynamics. Inventory, job growth, and local economic conditions matter more than Fed headlines.
The HouseJet Recommendation
Stop trying to time the mortgage rate market. It's like trying to time the stock market—even the experts get it wrong.
Instead, focus on whether buying a home makes financial sense for you right now. Can you afford the monthly payment? Do you plan to stay in the area for at least a few years? Is there a house available that meets your needs?
If the answers are yes, then the current rate is the right rate.
And remember, you can always refinance later if rates drop significantly. But trying to wait for the absolute perfect moment means you might miss out on the right house—or watch prices climb even higher while you're waiting for rates to fall.
The Fed lowering rates is good news for the broader economy. It signals that policymakers are trying to keep things moving in the right direction. But your mortgage rate is going to depend on a lot more than what happens at a Fed meeting.
Want to talk about what mortgage rates and home prices look like in your specific area? HouseJet can help you understand your local market and make a smart decision based on real numbers, not headlines. Because at the end of the day, the best rate is the one that gets you into the right home.