Key Takeaways
- Mortgage rates dropped modestly before Wednesday’s highly anticipated Fed rate hold announcement.
- The mortgage dip and this week’s Fed news are largely unrelated, as the fed funds rate doesn’t directly impact long-term loans like mortgages.
- While at least one Fed rate cut is predicted this year, timing a home purchase around interest rate changes is risky—mortgage rates may not follow the Fed’s moves, and they could even rise.
- Buyers should focus on personal readiness and finding the right home, rather than gambling on when mortgage rates will drop.
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Mortgage Rates Moved While the Fed Held Steady
Rates on new 30-year mortgages dropped Tuesday, fully erasing the climb of the previous three days. The current average is now 6.86%—an improvement compared to rates well above 7% in May.
That drop came ahead of Wednesday’s Federal Reserve rate announcement. As had been overwhelmingly predicted for weeks, the central bank held its benchmark interest rate steady for the fifth time this year.
It’s common to think that when the Fed adjusts the federal funds rate, mortgage rates will move in tandem. But this is a myth. While it’s true there are indirect links between the Fed and mortgage rates, the two do not move together—and in fact, can even move in opposite directions.
If you’re planning to buy a home, it can be tempting to wait, hoping that mortgage rates will drop in the coming months or year. But here’s why that could be a losing strategy—and what you should do instead.
2 Reasons Not to Wait for the Fed Before Locking Your Mortgage Rate
Deciding when to buy a home is tough in any market—and with today’s mortgage rates in the upper-6% range, it’s tempting to delay in hopes of lower rates ahead. It’s certainly smart to aim for the lowest mortgage rate you can get, since even a quarter- or half-point difference can add up to hundreds, or even thousands, in annual savings.
But if you’re hoping to score a better rate simply by waiting for the Federal Reserve to start cutting interest rates later this year, you could be sabotaging your homebuying process. Here are two reasons why it makes sense to buy when the time is right for you.
Fed Rate Cuts Are Still Likely This Year—But Are Far From Certain
After lowering interest rates three times from September to December of last year, the Federal Reserve shifted into neutral—holding the federal funds rate steady in its first five meetings of 2025, with its latest rate hold announced Wednesday.
Though an official quarterly forecast from the central bank won’t come until September, financial markets are currently pricing in about a 45% chance of a quarter-point rate cut at the Fed’s meeting that month, according to the CME Group’s FedWatch Tool. By October, the likelihood of at least a quarter-point cut climbs to 66%, and by year-end, it rises to almost 88%. There’s also nearly a 50% chance of a half-point reduction or more by the end of 2025.
But a lot can happen in the economy between now and the fall. The Fed is closely monitoring the economic impact of President Donald Trump’s evolving tariff policy, and inflation could rise again or weaknesses might emerge in the job market. These competing risks could complicate the Fed’s decision-making, and the central bank has acknowledged the current outlook is highly uncertain. It’s therefore possible the Fed could keep rates elevated longer than markets anticipate.
This uncertainty is one reason why waiting for a Fed rate cut may not be your best move if you’re ready to take on a mortgage. But there’s another compelling reason, too.
Even a Fed Rate Cut Won’t Guarantee Lower Mortgage Rates
Many homebuyers assume that when the Fed adjusts interest rates, mortgage rates will follow—but that’s not how it works. In reality, the relationship between the Fed’s benchmark rate and mortgage rates isn’t direct. Instead, the federal funds rate primarily influences short-term rates, such as those on bank accounts, credit cards, and personal loans.
Meanwhile, fixed-rate mortgages are long-term loans, and their connection to Fed policy is far more tangential. A variety of economic forces shape the mortgage market—including inflation, consumer demand, housing supply, the overall strength of the economy, and especially movements in the bond market, such as 10-year Treasury yields. These factors often cause mortgage rates and the federal funds rate to move independently—and sometimes in opposite directions.
That’s exactly what happened in the final quarter of 2024, when mortgage rates climbed sharply despite a bold half-point Fed rate cut in September, followed by two quarter-point reductions in November and December. While the federal funds rate dropped a full percentage point over those three months, 30-year mortgage rates surged nearly 1.25 percentage points higher by mid-January.
Mortgage rates have also been pushed around by President Trump’s tariff policy, which took effect on April 2. The initial market reaction sent bond yields tumbling and triggered a brief drop in mortgage rates. But as uncertainty deepened and trade tensions escalated, bond yields reversed course—and mortgage rates surged.
Since then, the average 30-year mortgage rate has fallen, risen, and fallen again—continuing a roller-coaster ride fueled by market volatility. And all of this has happened while the federal funds rate hasn’t budged.
Lock In When You’re Ready—Rates Under 7% May Be Your Sweet Spot
Rates on new 30-year mortgages are down after spending much of May and some of June in 7% territory. The current 30-year national average is 6.86%—a notable improvement from May’s peak of 7.15%.
As we’ve discussed, there’s no guarantee that waiting for a Fed rate cut will pay off—whenever it finally comes. Also, many experts predict that mortgage rates won’t see significant reductions this year or even in 2026. While mortgage rates may drift a bit lower, the improvement is expected to be modest.
So instead of waiting for a minor cost reduction that may never arrive, it’s likely smarter to lock in a mortgage when the timing fits your finances and the right home comes along.
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The national and state averages cited above are provided as is via the Zillow Mortgage API, assuming a loan-to-value (LTV) ratio of 80% (i.e., a down payment of at least 20%) and an applicant credit score in the 680–739 range. The resulting rates represent what borrowers should expect when receiving quotes from lenders based on their qualifications, which may vary from advertised teaser rates. © Zillow, Inc., 2025. Use is subject to the Zillow Terms of Use.
