A Federal Reserve interest rate cut this week could help further reduce mortgage costs for homebuyers.
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The second-to-last Federal Reserve meeting is set to begin today and, with it, expectations of another rate cut. The central bank reduced its benchmark interest rate by 25 basis points when it met in September and is largely expected to do so again on Wednesday. That cut can potentially provide some minimal relief to a wide range of borrowers but is perhaps most eagerly anticipated by homebuyers.
Mortgage rates in September, for example, fell to a three-year low in anticipation of the Fed's rate cut at that point. And they've stayed relatively steady in the weeks that have followed. Another cut this week could open the door for homebuyers who have otherwise been reluctant to start house hunting.
To better determine their next steps in this environment, however, it helps to remember a few important items about mortgage interest rates now. Below, we'll detail three worth examining as the Fed prepares to cut rates yet again.
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What to remember about mortgage rates as the Fed prepares to cut rates again
There's a lot to consider in today's evolving mortgage interest rate climate. Here are three important items buyers shouldn't forget, however, as they try to determine their next steps:
Lenders interpret Fed rate actions differently
Fed rate actions can influence lenders but they don't automatically dictate them. Some lenders, for example, will reduce their rates to buyers in advance of a presumed rate cut. This is why the "priced in" rate you see listed on some lender websites in the days prior to a rate cut is about the same as what you see in the days after the Fed meeting. Other lenders, however, may take a more cautious, "wait and see" approach.
Different lenders interpret Fed rate actions in different ways. Consider shopping for rates and lenders online now, then, to determine which is currently the most affordable. That way, you'll know which one to use when you're actually ready to apply.
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A December Fed rate cut is not a guarantee
As of October 28, the chances of another Fed rate cut at the bank's final meeting of the year in December sit just under 90%, according to the CME Group's FedWatch tool. But that's as of now, in the final days of October. A lot can and likely will happen from an economic standpoint before the bank meets again on December 9 and 10.
Will the ongoing government shutdown continue delaying the release of important economic data that the Fed needs to determine next steps? Or will the shutdown end and the data be released as normal? And what will that data even indicate? There are still a lot of unknowns at this point, so waiting for the Fed to cut rates one more time in December is inherently risky and, likely, unnecessary if homebuyers can already afford to take action now.
Rates are already significantly lower than they were at the start of the year
There may be a bit of a misconception on behalf of some buyers that mortgage rates only recently started declining. In reality, rates are already significantly lower compared to where they started the year, when they were sitting around 7% for a 30-year mortgage term. At an average of just 6.19% now, buyers can already realize major savings compared to what they would have paid in January.
While it may be tempting to wait for an ideal lower rate, then, it's important to also realize the changes that have occurred this year. And buyers should also remember what happened in September 2024, when rates plunged to a then-two-year low: They increased in the weeks that followed. So if today's lower rates are affordable, if not ideal, then it may make sense to lock one in now. They're already lower than they've been most of the year, and if they do decrease further in the future, you can always consider refinancing at that point.
The bottom line
Being an informed homebuyer is always critical, but especially in the unique economic climate of recent months. By remembering that lenders respond differently to Fed rate cuts, being realistic about the potential for another cut in December, and understanding that rates here are already much lower than they were when 2025 started, buyers can better determine if now is the right time to act or if they should delay their house hunt further. There is no uniform answer, but with a little time spent researching their options, buyers can boost their chances of making the right, cost-effective decision.
Edited by Angelica Leicht
