How an October Fed rate cut could impact mortgages, according to experts

Another Federal Reserve rate cut could have a big impact on the mortgage landscape this October. Andrii Yalanskyi/Getty Images

Borrowers are finally beginning to see more affordable mortgage rates, which have been falling steadily recently. The average 30-year fixed-rate mortgage rate, for example, dropped to a three-year low of 6.13% in late September, which was due, in large part, to the Federal Reserve lowering interest rates for the first time in 2025. Falling rates are a welcome change for homebuyers and those looking to refinance but have been on the sidelines waiting for more affordable terms.

And, there may be good news on the horizon for borrowers, who could see another Federal Reserve rate cut happen in October when the Fed meets again. While mortgage rates aren't directly set by the Fed, they often move in the same direction. So, as we turn the page to October, how would another rate cut impact mortgages? Here's what the experts say. 

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How an October Fed rate cut could impact mortgages, according to experts

While borrowers may be hoping for another large dip in mortgage rates, a potential October Fed rate cut may not impact the cost of mortgage loans as much as many expect, experts say. That's because markets often anticipate these decisions in advance and price in adjustments long before the Fed meets.  

"It is important to know that in almost all cases, mortgage rates have already moved prior to the Fed announcement because the markets have already anticipated what the Fed will do, often weeks before the FOMC meeting," Shmuel Shayowitz, president and chief lending officer at Approved Funding, says.

Even when the Fed does cut, mortgage rates may be shaped more by movements in the bond market than by the Fed's action itself. 

"If the Fed cuts rates again in October, mortgage rates could dip further, but that's not always the case," notes Jim Breeze, senior vice president of mortgage product development at PNC Bank. "Mortgage rates are influenced more by Treasury yields than directly by decisions made by the Fed."

Right now, experts say the market may already be baking in a 0.25% drop, as is widely anticipated. The CME FedWatch tool estimates the odds of a 25-basis-point cut in October at 87.7 %. 

"I don't think we will have much movement after the October meeting, even if there is a 25 basis point cut," says Shayowitz.

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Could mortgage rates continue to drop in October?

That said, other factors could cause mortgage rates to dip before the Fed meets on October 28 and 29. 

"Mortgage rates could absolutely fall before an official October Fed rate cut," says Brian Shahwan, vice president and mortgage banker at the Melissa Cohn Group at William Raveis Mortgage. 

Shahwan notes that Treasury yields could impact the fed funds rate more directly. 

"If weekly economic and inflation data drive the 10-year Treasury down, mortgage rates will follow suit no matter what the October Fed decision is."

Breeze adds that if economic data shows slowing growth or cooling inflation, rates may drop ahead of the Fed's October decision. 

"We've seen this happen before, especially when bond yields fall in anticipation, as that has a more direct impact on mortgage rates," he says.

Which homeowners should consider refinancing right now

Homeowners who locked in high mortgage rates in recent years may want to explore their options if rates continue to fall in October, experts say. 

"Borrowers who secured financing with rates in the 7% to 8% range in the last year or two might want to consider refinancing today," says Shahwan. 

By refinancing your mortgage loan at a lower rate, homeowners may reduce their monthly payments or gain access to cash for home improvements or other expenses. 

Many homeowners are already turning to different mortgage options, as Breeze notes. 

"We're seeing a spike in cash-out refinances and adjustable-rate loans, especially among borrowers with strong equity positions," Breeze says.

Shayowitz says more borrowers are also considering adjustable-rate mortgages because the initial rates can be lower than a fixed loan. 

"For those betting on lower rates in 2026, ARMs might be a great 'bridge' tool to capitalize on lower rates today, with the assumption that they will refinance in 12 to 24 months," Shayowitz says. 

He cautions that while it might be a good option for some, borrowers should thoroughly explore all the risks it entails before proceeding.

The bottom line

The impact of an October Fed rate cut on mortgages may be limited, especially if it's a 25 basis point drop. As the experts above note, the Treasury yield and other economic factors may have a more direct impact on mortgage rates than any October Fed rate cut. If you find a home you love, your best strategy may be to make sure you can comfortably afford the current mortgage payment, property taxes, insurance and other related costs. It also helps to shop around and secure a loan with a low rate and favorable terms that you can easily manage.