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“The Cost of Waiting for Rates to Drop” shows why we shouldn’t count on Fed cuts to lower mortgage rates. Rates actually follow the 10-year Treasury and often rise again after brief dips. Waiting for a big rate drop usually saves little and can cost buyers their chance at homeownership.
We all hear it: “We’ll wait for mortgage rates to drop.” It sounds logical — the Fed just cut rates, right? Shouldn’t mortgage rates follow?
Spoiler: not always. And lately, not at all.
The Fed’s recent 0.25% cut made headlines everywhere. But instead of mortgage rates falling sharply, they bounced around.
• On Sept. 16, 2025, average 30-year fixed rates dipped to 6.13%.
• By Sept. 23, 2025, they’d already climbed back up to 6.37%. (Mortgage News Daily)
That’s the frustrating reality. Waiting for Fed action doesn’t guarantee lower mortgage rates, and sometimes, the opposite happens.
Mortgage rates don’t follow the Fed Funds rate. They track the 10-year U.S. Treasury yield — which recently climbed to about 4.149% (U.S. Treasury, Sept. 22).
Here’s why: when the Fed cut rates, short-term borrowing costs like car loans, credit cards, and home equity lines of credit moved lower. But long-term borrowing costs, like 30-year mortgages, actually went higher because investors are still worried about inflation hanging around and about the government’s growing deficit and debt issuance.
In bond market terms, that’s called the curve steepening and term premiums rising. Huh?
In plain English, it just means investors demanded more return for holding long-term bonds — and that pushed mortgage rates up.
This week’s economic news could nudge rates down again. We’ve seen that movie before.
Rates dipped as low as 6.13% on Sept. 16, but by Sept. 23 they reversed to 6.37% (Mortgage News Daily). Why? Because investors shifted focus back to inflation, cautious Fed messaging, and Washington’s borrowing needs. The bond market spooked, and mortgage rates followed.
That’s the pattern: rates drop quickly, then bounce right back up just as fast. And while rates have generally trended down this year, the change has been slow — never enough to truly spur buyer demand. The erratic interest rate movement isn’t helping either.
To make it worse, buyer confidence isn’t firing up. Fannie Mae’s Home Purchase Sentiment Index (HPSI) for August slipped to 71.4, down 0.4 points from July.
Translation: buyers are still on the fence.
Quoting the news isn’t about predicting the future. Like you, I’d love to see rates fall for both buyers and sellers. But hope is not a strategy in this market.
To understand the disconnect, here’s a simple way to look at it:
If this feels familiar, it’s because it is. Back in late 2023 and through much of 2024, mortgage rates stayed stubbornly in the 6–7% range despite multiple Fed cuts. Every time the marketcheered a dip, it was short-lived — erased by inflation concerns or fresh bond supply.
The lesson: mortgage rates often move ahead of the Fed and then change direction on a dime when the next piece of data hits.
Even when rates dip, the payoff can be underwhelming.
Take a 0.25% drop — on a $400,000 loan, that only saves about $63/month. Not exactly the magic number buyers are hoping for. This is why waiting for “the big drop” often backfires. Buyers hope for hundreds in monthly savings, but the reality is much smaller — and disappears quickly when markets reverse.
If you want a better sense of where mortgage rates are headed, don’t just watch the Fed.
Keep an eye on:
• Inflation reports — sticky inflation keeps investors defensive.
• Treasury auctions — more government borrowing means more supply, which can push long-term yields higher.
• Fed messaging — careful, cautious language can spook markets as much as policy moves.
• Growth data (PMIs, jobs) — stronger-than-expected data reduces the urgency for rate cuts.
Published September 25, 2025
Anthony Grasst, National Builder Manager at CMG Home Loans. NMLS #273165
At Cambridge Homes, we know affordability matters more than ever. That’s why we’re offering a 2/1 buydown program on select homes to secure you the best possible rate right now. With this financing incentive, your first year’s rate is 2.99%, your second year is 3.99%, and from years 3–30, your rate is fixed at 4.99%. This is one of the key advantages of purchasing a new build; we can provide financing solutions that bring your payment down significantly and give you peace of mind in today’s market.
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