Will mortgage rates keep going down in response to the October Fed meeting?

As expected, the Federal Reserve board voted to trim another 0.25 percent off its benchmark rate at its late October meeting.

Even before the meeting, average rates on 30-year mortgages had fallen almost a full percentage point since the beginning of the year.

Now, the Fed's second consecutive rate cut could add more downward momentum on mortgage rates.

How much lower will mortgage rates go?

After a couple years of stubbornly high rates as the Fed battled inflation and market volatility, mortgage rates seem to be settling into an extended holding pattern of gradual decline.

This week’s average rate of about 6.19 percent is a yearly low, down from above 7 percent at the beginning of the year. Fannie Mae expects average rates to fall below 6 percent by the end of the year.

This, of course, is welcome news for the housing industry. Home buyers and refinancers have responded with an uptick in new applications this week. But no one can guarantee this pattern of lower rates will hold.

Why the drop? A few factors

Global economic forces shape mortgage rates. This week’s lower rates can be traced to:

• Lower bond yields, especially on the 10-year Treasury bond which often traces the ups and downs of mortgage rates.
• The anticipation leading up to the late October Fed meeting since most experts expected a rate cut.
• The ongoing government shutdown which has created more uncertainty in long-term economic forecasts.
• Lower inflation compared to 2023 and 2024. This month's’s Consumer Price Index report, released 10 days late because of the government shutdown, shows an increase of about 3 percent increase in consumer prices compared to last year.

Other data points also shape mortgage rates, but generally, rates can fall when overall economic certainty slips.

How the last Fed meeting will affect mortgage rates

The Fed's most recent 0.25 percent reduction to its benchmark rate can have an almost immediate impact on home equity lines of credit which are indexed directly to the prime rate.

But the affect of the Fed's actions on new 30-year fixed-rate mortgages and refinances is less clear. Sometimes, when the Fed cuts its rate, average mortgage rates on new loans increase a little in the short term. Other times, rates fall, tracking the lower Fed rate.

What is more certain: The Fed’s actions on rates, and its comments in news conferences after the meeting, show what it thinks about the overall, long-term health of the economy.

In a nutshell, higher rates can cool a hot economy; lower rates can spark more development when the economy is lagging.

Is the government shutdown still affecting mortgage rates?

This has been a mixed bag. The ongoing government shutdown has created operational hiccups, especially for new mortgage loans that rely on government insurance or federal flood insurance coverage.

But the general economic unease caused by the shutdown has likely nudged mortgage rates down as investors seek the safety of bonds, lowering their yields. Lower bond yields tend to push down mortgage rates.

Delayed or canceled government reports on employment and inflation, because of the government shutdown, has also stirred uncertainty about the future of the economy.

Is now a good time to buy a home?

Falling interest rates lower borrowing costs and make homes easier to buy. Refinancing to a lower rate can lower monthly payments on the same home while also reducing long-term interest costs.

For example, a $400,000 home loan would require a principal and interest payment of $2,661 at 7 percent. At 6.25 percent the same home would cost $2,463 a month. That $198 in savings per month would rack up more than $70,000 in savings over a 30-year term.

Use a mortgage calculator to run your own loan scenarios.

Seeing the savings that come from a lower rate begs the question: Should I wait another month to see if rates fall even more?

Refinancers usually have this choice since they already own their home. New home buyers face tighter deadlines like expiring leases or the pending sale of their existing homes.

In either case, waiting can backfire since rates can move in either direction, especially during times of economic uncertainty.

Why is my rate different from the rates on the news?

News reports about the ups and downs of mortgage rates usually discuss average mortgage rates. Average rates set the context for individual rates, but every borrower’s situation is unique:

• Borrowers with excellent credit scores and low monthly debt payments who can make large down payments tend to get the most competitive rates.
• Borrowers who struggle to meet a loan’s minimum requirements for down payment, credit score, and debt usually see higher-than-average rates.

To see how all these factors work together for your rate, get a preapproval. Better’s online preapproval can show your borrowing power and estimate your costs in as little as three minutes.

Find out in as little as 3 minutes – no credit impact