Could mortgage rates drop even lower if Fed makes anticipated cut?

WASHINGTON - Could mortgage rates drop even further if the Federal Reserve cuts its benchmark interest rate on Wednesday?

The answer remains unclear. However, the step, if taken, should lead to lower borrowing costs for consumers and businesses just weeks before the presidential election.

The average rate on a 30-year mortgage in the U.S. fell to its lowest level in 19 months last week, driven by a decline in Treasury yields ahead of the anticipated interest rate cut from the Federal Reserve.

The rate dropped to 6.20% last week – down from 6.35% the previous week, according to Freddie Mac. A year ago, the rate was 7.18%. This marks the lowest average rate since February 12, 2023, when it was 6.12%.

Borrowing costs for 15-year fixed-rate mortgages, favored by homeowners looking to refinance, also decreased. The average rate fell to 5.27% from 5.47% the previous week, compared to 6.51% a year ago, Freddie Mac reported.

Mortgage rates are influenced by various factors, including the bond market’s response to the Federal Reserve’s interest rate policies. Changes in the 10-year Treasury yield, which lenders use to price home loans, play a significant role in determining mortgage rates.

Analysts are optimistic about the potential for further reductions in interest rates. The Federal Reserve has signaled that a rate cut might be on the table Wednesday.

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