Cautionary Note on House Hunting and Mortgage Rates
Delaying Mortgage Rate Lock-in: 2 Reasons to Act Now
If you're crushing on the property market and tied to the idea of a lower mortgage rate dropping to trigger a home-buying frenzy, think again, buddy. You might end up shooting yourself in the foot. Here's the lowdown.
First off, the Fed has been sitting pretty with interest rates on hold for the better part of 2025. However, Wall Street's rootin' for a rate cut before the year's end, Statistan' says so. But hey, stuff happens, and the economy can be as unpredictable as a rollercoaster ride, so who knows?
Now, if the Fed does decide to lower rates, it ain't a given that mortgage rates will follow suit. You see, the relationship between the Fed's benchmark rate and mortgage rates isn't as straightforward as you might think. While a dip in the federal funds rate may ease borrowing costs for banks, it doesn't necessarily translate into lower mortgage rates.
The mortgage market is driven by a cocktail of factors, including inflation, consumer demand, housing supply, and the whether or not the bond market is in a good mood, especially the 10-year Treasury yields. Sometimes, these factors can snag mortgage rates in directions opposite to the Fed funds rate.
Take, for example, late 2024, when mortgage rates skyrocketed despite the Fed slashing rates in September. Or the tariff fracas kicked off by President Trump earlier this year, which sent mortgage rates on a wild ride, proving that the Fed's moves don't hold all the cards.
So, what's a home-hunter to do? Waiting for the Fed to drop rates may well backfire, leaving you out in the cold. If you've got your eyes on a place and your finances are in order, it's better to lock in a mortgage rate sooner rather than later. That way, you'll have the freedom to refinance down the line if rates drop more drastically. Trust us, buddy, it's all about playing the odds.
The Dodgy Connection Between the Fed and Mortgage Rates
You might think the Fed's benchmark rate – the federal funds rate – has a direct impact on mortgage rates. Truth is, that relationship is more complex than a game of whiskey poker between the Fed and mortgage lenders. The federal funds rate affects the cost of borrowing for banks, which might, in theory, adjust mortgage rates based on their costs. But things aren't quite that simple.
In reality, mortgage rates are more closely tied to the yields of long-term Treasury bonds, like the 10-year Treasury yield. The reasoning? Mortgage-backed securities are often compared to these bond yields. This means that even if the Fed cuts rates, mortgage lenders might not pass the savings on to customers. It's all about supply and demand, buddy, and the Fed's moves aren't the only factor at play.
Why You Shouldn't Count Your Chickens Before They Hatch
By now, it should be clear that pinning your hopes on a Fed rate cut to get a better mortgage deal is a mug's game. The economy's too unpredictable, and mortgage rates can slip and slide based on a whole host of factors. Instead, focus on buying a home when the timing aligns with your finances and you've found the right property. That's what matters most, buddy.
Today's Mortgage Rate News
Zillow's got you covered with the latest on purchase and refinance mortgage rates. Here are our daily updates:
- Today's Mortgage Rate News
- Mortgage Rates by State
- Today's Refinance Rate News
- Refinance Rates by State
How We Keep Track of the Best Mortgage Rates
The mortgage rates we quote come straight from the Zillow Mortgage API, assuming an LTV ratio of 80% (i.e., a down payment of at least 20%) and an applicant credit score in the 680-739 range. This gives you a sense of what borrowers might expect when they approach lenders, though their rates could vary based on qualifications. Caveat emptor, cowboy.
- In the world of personal-finance and mortgage rates, it's important to remember that although the Federal Reserve's moves might affect the federal funds rate, the relationship with mortgage rates isn't as straightforward as one might think.
- When planning to purchase a home, it's not advisable to solely depend on the Fedrate cuts to secure a better mortgage deal. Instead, focusing on financial readiness and finding the right property is more crucial.
