Why mortgage rates may fall before the September Fed rate cut is issued

Mortgage interest rates are well-positioned to decline this September, perhaps before a rate cut is even formalized. Getty Images/iStockphoto

September 17. That's when the next Federal Reserve meeting will conclude, and with it, many experts now predict that the first interest rate reduction of 2025 will be issued.

While multiple rate reductions were issued in the final months of 2024, the federal funds rate remained frozen throughout 2025, stuck at a range between 4.25% to 4.50%. But that's expected to change this month, with the chances of a rate reduction currently listed at more than 95%, according to the CME Group's FedWatch tool.

This will result in lower interest rates on savings vehicles, such as certificates of deposit (CDs) and high-yield savings accounts. But the hope is that it will also provide some relief for borrowers. With rates elevated on everything from personal loans to credit cards, compared to what they were at the start of the decade, even a slight rate reduction will be welcomed. And that's especially true for homebuyers, some of whom have been contending with the highest mortgage rates seen in decades.

That said, although the next expected rate cut is expected to be formally issued on September 17, there's a good chance that mortgage rates could fall before then. Below, we'll explain why.

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Why mortgage rates may fall before the September Fed rate cut is issued

It's critical to remember that mortgage rates are driven, in part, by the Fed's monetary policy, but they aren't dictated by it. And many lenders won't be. As a rate reduction becomes increasingly likely, lenders can and likely will start to reduce the rates they offer both homebuyers and homeowners looking to refinance their mortgages. This is why the mortgage rates you see listed before September 17, for example, may not look materially different than what you see on September 18 and in the days that follow.

Recent history underlines this dynamic. Last September, average mortgage interest rates plunged to their lowest level in two years. But that decline came right before the Fed issued a larger-than-anticipated 50 basis point reduction – not after it. There's no reason to think that won't happen again this September, even if the expected rate reduction this time is widely expected to be in a smaller, 25-basis-point amount.

It's also important to note that mortgage rates have already been on a bumpy decline for much of 2025. According to FreddieMac data, the average rate on a 30-year mortgage term in January was 7.04% but that had dropped to 6.56% by the end of August. In other words, rates have already been cooling off, so it's unlikely that they'll dramatically fall once a rate cut is formalized.

Finally, borrowers should remember multiple factors, including the 10-year Treasury yield, impact mortgage interest rates. If treasury rates decline, so are mortgage rates likely to fall. And if that cools soon, mortgage rates could be lower, even if a rate cut from the Fed is still pending. 

This all noted, the interest rate climate and mortgage rates in particular are difficult to predict. So, if you can find a home that you can afford with a rate that fits your budget, it's generally advisable to take action now. You can always refinance at a later date but your dream home is unlikely to remain on the market for much longer.

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The bottom line

Mortgage rates, while influenced by the Fed's monetary policy, aren't fully dictated by it. That means that rates can and potentially will change before the Fed adjusts rates – and that's a good thing this month as a lower federal funds rate looks imminent. Homebuyers and owners looking to refinance, then, should start the process of boosting their credit profile right away, that way they're ready and willing to take advantage when rates actually do finally fall lower.