Falling mortgage rates lead to a surge in refinances, hitting the highest level since 2022.
Federal Reserve Lowers Interest Rates, Boosting Mortgage Rates
The Federal Reserve has made a move to lower interest rates, with the federal funds rate now projected to be at a median of 3.6% for the year. This decision was made by the Federal Open Market Committee (FOMC) on September 17, 2025, when they reduced the rate target range to 4% to 4.25%.
Following the 25 basis points cut, the federal funds rate will sit in a new range of 4% to 4.25%. This news comes as a relief to many, as the range for the federal funds rate this year is projected to be between 2.9% and 4.4%.
The lower interest rates have also had a positive impact on mortgage rates today. According to Freddie Mac, the rate on the 15-year fixed note, which averaged 5.15% one year ago, has fallen again this week. Last week's rate on the 15-year fixed mortgage was 5.5%, but this week's rate has dropped to 5.41%.
The average rate on the benchmark 30-year fixed mortgage has also seen a decrease, falling from 6.09% a year ago to 6.26% this week. This is lower than last week's reading of 6.35%, and represents an 11-month low for the 30-year mortgage rate.
The lower mortgage rates are benefiting borrowers, with many homeowners refinancing their loans to take advantage of the decreased rates. Realtor.com senior economist Jiayi Xu stated that the 30-year mortgage rate has slipped to an 11-month low, and that borrowers are currently benefiting from this trend.
Freddie Mac's chief economist, Sam Khater, also commented on the increased refinancing activity, stating that many homeowners are refinancing due to the decreased mortgage rates. In fact, the share of mortgage applications that were refinances reached nearly 60%, the highest since January 2022.
The Fed's decision to lower interest rates is also part of a larger effort to address housing affordability. The Treasury's Bessent mentioned that fixing the housing affordability crisis will be one of his 'big projects' this fall. Currently, only 28% of US homes are now affordable for a typical American household, due to a drop in buying power.
Despite these positive developments, it is important to note that the Fed's dot plot shows two more interest rate cuts this year. It remains to be seen how these future cuts will impact the housing market and mortgage rates moving forward.
