Fed Cuts Don't Mean Lower Mortgage Rates—What First-Time Buyers Need to Know

Quick Takeaway

If you're waiting for the Fed to cut rates before locking your mortgage, you're likely setting yourself up for disappointment. Research from multiple Federal Reserve banks shows mortgage rates follow the 10-year Treasury yield—not the Fed funds rate—and often move in the opposite direction of what you'd expect. Mortgage rates have actually gone UP after the last several Fed rate cuts. Lock when you find a rate that works for your budget, not when you think the Fed will help you.

The Big Myth: "The Fed Will Lower My Mortgage Rate"

The Federal Reserve doesn't set your mortgage rate. When you hear "the Fed cut rates," they're talking about the federal funds rate—a short-term rate affecting credit cards and auto loans. Your 30-year mortgage is different.

According to research from the Federal Reserve Bank of Atlanta, mortgage rates are "more strongly linked to longer-term rates such as the 10- or 20-year Treasury yield." The Atlanta Fed noted: "At times, mortgage rates and short-term rates can move in opposite directions." Following the Fed's September 2024 half-point rate cut, mortgage rates actually rose from 6.09% to 6.84% over the next two months.

What the Research Shows

The Federal Reserve Bank of San Francisco found that house prices don't respond to changes in the federal funds rate—they respond to changes in long-term interest rates. And those changes happen within two weeks of Fed announcements because markets are forward-looking. By the time the Fed announces anything, traders have already positioned themselves.

A study from the Federal Housing Finance Agency confirmed this: anticipated Fed announcements had almost no effect on rates, while surprise announcements could move mortgage rates 15 to 25 basis points in a single day—not always in your favor.

The "Wait and See" Mistake

Research from Yale School of Management found that waiting for a Fed rate cut is a common mistake. Professor Kelly Shue discovered that "the current interest rate on long-term loans has already dropped to reflect information about future anticipated cuts." If everyone expects the Fed to cut rates, that expectation is already baked into today's mortgage rates. There's nothing to wait for.

Why do rates often rise after Fed cuts? When rates are high, investors who buy mortgage bonds expect borrowers to refinance when rates drop. They demand higher returns to compensate for this "prepayment risk." Bankrate reported that after the Fed cut rates three times in late 2024, mortgage rates remained stubbornly above 7% for much of early 2025.

What Actually Moves Mortgage Rates

• 10-Year Treasury Yields: The biggest factor—mortgage rates typically run 1.5 to 2 percentage points higher.
• Inflation Expectations: Higher expected inflation means higher mortgage bond yields.
• Economic Growth: Strong growth pushes long-term rates up; recession fears push them down.
• The Spread: The gap between Treasury yields and mortgage rates has been unusually wide—around 2.5% versus a historical 1.75%.

Practical Steps for Locking Your Rate

1. Don't try to time the market. As Redfin's head of economic research said: "It's impossible for households to anticipate the best time to get a mortgage."

2. Lock when you find a rate that works. Once you're approved and the numbers make sense, lock it in.

3. Shop around. Research shows comparing lenders can save about 0.55% on your rate—often worth more than any rate movement you might catch by waiting.

4. Consider a float-down option. This lets you lock now but take advantage of lower rates if they drop significantly before closing.

5. Match your lock period to your timeline. Most free locks last 30 to 45 days. If closing might take longer, pay for an extended lock.

The Bottom Line

Waiting for a Fed announcement to lock your rate is like waiting for yesterday's weather forecast. The market has already moved. Your energy is better spent comparing lenders and locking when you find terms that work—a strategy based on what you can control.