Do mortgage rates always fall when the Fed cuts rates?

Not always. Fixed mortgage rates usually track the 10-year Treasury yield and investor expectations, while variable rates like ARMs and HELOCs move more directly with Fed actions.

How soon after a Fed rate cut do mortgage rates change?

It depends. Adjustable-rate mortgages (ARMs) and HELOCs tied to the prime rate or SOFR usually adjust quickly, often within two billing cycles. Fixed rates, however, move slower and may not drop after a Fed decision.

How do rate cuts affect home affordability?

If mortgage rates come down after a Fed cut, your monthly payment could be lower for the same loan amount, giving you more buying power. But since fixed rates don’t always follow the Fed, affordability depends on broader market factors, like inflation or housing demand, too.

What happens to adjustable-rate mortgages after a Fed cut?

ARMs are linked to short-term benchmarks like the prime rate or SOFR, which track the Fed closely. That means your ARM payment usually goes down after a rate, though it can go back up if the Fed raises rates again later.

Is now a good time to refinance?

It depends on your personal situation. Refinancing often makes sense if today’s rates are at least 1% lower than what you’re paying now, and if you plan to stay in your home long enough to recover closing costs. Always do your research and run the numbers before making a move.

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Fed rate cut: What it means for mortgage rates and homebuyers

On October 29, 2025, the Fed announced a 0.25% cut to the federal funds rate, dropping the target range to 3.75%–4.00%. Lower interest rates sound great on paper, but you may wonder how a Fed rate cut affects mortgage rates and your home-buying or refinancing goals. While the Federal Reserve interest rate influences borrowing costs across the economy, it doesn’t directly set mortgage rates. Instead, today’s mortgage rates are driven by broader economic conditions, like inflation, investor sentiment and market dynamics. That’s why mortgage rates don’t always move with the Fed. Still, understanding how the two connect can help you make smarter home financing decisions, whether you’re buying, refinancing or tapping into your home’s equity.

The Fed just cut rates — here’s what happened

The Federal Open Market Committee (FOMC) cut the federal funds rate by 0.25% on October 29, 2025, setting a new target range of 3.75%–4.00%. This is the rate banks charge each other for overnight loans, and it’s one of the Fed’s main tools for shaping borrowing costs across the economy. By adjusting it, the Fed can influence both employment and inflation. At its latest meeting, the FOMC faced challenges on both ends, with slowing job growth and elevated inflation. Ultimately, it chose to cut rates for the second time this year to encourage the job market.

Why the Fed cuts (or raises) rates

Think of the Federal Reserve interest rate like an economic thermometer: lowering rates can warm up growth, while raising them can help cool inflation. When rates go down, borrowing becomes cheaper for businesses and consumers alike, which can boost spending and hiring. When rates rise, borrowing gets more expensive, helping to slow demand and control prices. These moves ripple through the economy and eventually influence the housing market too. You can track the latest mortgage rates anytime to see the changes for yourself.

How the Fed’s decision affects mortgage rates

So, what can you expect from mortgage rates after a Fed rate cut? The Fed rate sets the tone for borrowing costs, but it doesn’t directly dictate mortgage rates. Here’s how different types of home loans tend to respond:

Fixed-rate mortgages

Fixed-rate mortgages usually follow the 10-year Treasury yield, which reflects investor expectations about long-term growth and inflation. When Treasury yields rise or fall, fixed mortgage rates often move in the same direction. Because Treasury yields are influenced by market sentiment, not just Fed policy, fixed rates may shift even before a Fed decision. That’s why a Fed rate cut doesn’t always guarantee lower fixed rates.

Adjustable-rate mortgages (ARMs) and HELOCs

Adjustable-rate mortgages (ARMs) and home equity lines of credit (HELOCs) are more sensitive to the Fed’s moves. They’re tied to short-term benchmarks like the prime rate or the Secured Overnight Financing Rate (SOFR), which both track the federal funds rate. When the Fed cuts rates, these benchmarks typically fall within days, and borrowers often see their payments adjust within one to two billing cycles. In other words, ARM and HELOC borrowers tend to feel the effects of a Fed cut faster than fixed-rate borrowers do.

What a rate cut means for you

So how might a Fed rate cut actually affect you? That depends on where you are in your homeownership journey and the type of rate involved.

Homebuyers

When preparing to buy a house, you want to consider home affordability after a rate cut. A lower Fed rate can improve your buying power if it helps bring mortgage rates down, so keep your eye on rate trends. Fixed-rate mortgages tend to react slowly — or sometimes not at all — because they’re tied to long-term economic factors. Adjustable-rate mortgages (ARMs) usually respond more quickly, though the rate you start with can still change later. And remember, the housing market itself matters. Lower rates often fuel more demand, which can drive home prices higher.

PRO TIP

See how much your buying power can change at different interest rates with our Affordability Calculator.

Refinancers

If you already own a home, a rate cut could create refinance opportunities. Generally, refinancing pays off only if the new rate is at least 1% lower than your current one. Do your homework before you dive in—our Refinance Calculator can estimate how much you stand to save at different interest rates. Just be sure you’ll stay in the home long enough to recoup closing costs.

ARM or HELOC borrowers

If you have an ARM or HELOC, you might benefit from Fed cuts faster. Because these loans track short-term rates like the prime rate or SOFR, your payment could drop within a cycle or two after the Fed’s move. Check in with your lender if you want more details around timing.

Should you refinance or buy after a rate cut?

A Fed rate cut can open opportunities if it impacts mortgage rates, but the right choice depends on your financial profile. Lenders look closely at your credit score, debt-to-income ratio and overall stability when setting your rate—and a weak profile can mean higher costs even when rates are low.

To recap, refinancing may be worthwhile if you can lock in a rate at least 1% lower than your current one. If you’re buying, lower rates can increase purchasing power, but only if you’re well-qualified.

Either way, it pays to be prepared: keep an eye on current mortgage rates, run the numbers and connect with a Citi Mortgage Representative for some personalized guidance.

Fed rate cut FAQs

Not always. Fixed mortgage rates usually track the 10-year Treasury yield and investor expectations, while variable rates like ARMs and HELOCs move more directly with Fed actions.
It depends. Adjustable-rate mortgages (ARMs) and HELOCs tied to the prime rate or SOFR usually adjust quickly, often within two billing cycles. Fixed rates, however, move slower and may not drop after a Fed decision.
If mortgage rates come down after a Fed cut, your monthly payment could be lower for the same loan amount, giving you more buying power. But since fixed rates don’t always follow the Fed, affordability depends on broader market factors, like inflation or housing demand, too.
ARMs are linked to short-term benchmarks like the prime rate or SOFR, which track the Fed closely. That means your ARM payment usually goes down after a rate, though it can go back up if the Fed raises rates again later.
It depends on your personal situation. Refinancing often makes sense if today’s rates are at least 1% lower than what you’re paying now, and if you plan to stay in your home long enough to recover closing costs. Always do your research and run the numbers before making a move.