Curious about how the Federal Reserve’s interest rates impact mortgage rates

In September, the Federal Reserve announced a drop in interest rates for the first time in over four years. Many people don't realize that while mortgage rates are influenced by the Federal Reserve, they aren't directly set by it.

How do interest rates set by the Federal Reserve impact mortgage rates?

Mortgage rates are more closely tied to the bond markets and the yield on a 10-year Treasury security, along with other economic factors. In early July, these factors began to lower mortgage rates, providing homeowners and prospective buyers with opportunities to refinance or feel more comfortable purchasing homes. If the Federal Reserve continues to lower rates, we could see further improvements in mortgage rates, offering more people the chance to refinance and increasing buying power for those looking to purchase.

Will a drop in interest rates make refinancing a viable option for existing homeowners looking to reduce their current rate?

Refinancing can be beneficial, but it depends on your individual situation. It's a good option if you plan to stay in your home long enough to recoup the costs of refinancing, known as your break-even point. You should also consider the rate you are refinancing from and to. Our mortgage consultants can help you through this decision-making process.

Will a change in interest rates impact the housing market?

Many buyers at various price points have been waiting for either a drop in rates or an increase in available homes. A decrease in mortgage interest rates will likely motivate these potential buyers, which could shift the dynamics of the home buying and selling market. While housing inventory has improved from its lowest levels, it remains limited in many areas. Continued reductions in mortgage rates might encourage more homeowners to list their properties, easing some of the inventory challenges.

What should potential buyers do now to prepare for homebuying this fall?

Many homebuyers start by browsing real estate apps to get an idea of available homes and prices in their area. While this is a good starting point, it's equally important to meet with a mortgage consultant early on to understand the types of loans you qualify for and to get pre-approved. Pre-approval can significantly strengthen your offer when you find a home you like, especially in a market with low inventory. Additionally, a mortgage consultant can inform you about any downpayment assistance programs you might be eligible for, providing valuable insights that you won't get from just browsing listings.

To connect with a mortgage consultant near you, visit our mortgage consultant page.

Peoples Bank is an Equal Housing Lender. NMLS# 617258. All loans are subject to credit approval.

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