Why Mortgage Rates Didn’t Fall More After the Fed Rate Cut

Limited Impact on Fixed-Rate Mortgages

The modest change in mortgage rates is largely due to the fact that markets had already anticipated and priced in the Fed’s move. The 30-year fixed-rate mortgage briefly dipped to its lowest point of the year at 6.26%, but this remains higher than last year’s 6.09% average.

It’s important to note that the federal funds rate primarily influences short-term inter-bank lending. Mortgage rates, by contrast, are more closely tied to Treasury yields and broader economic conditions.

Rise in Popularity of Adjustable-Rate Mortgages (ARMs)

While fixed-rate mortgages saw little movement, adjustable-rate mortgages (ARMs) responded more directly to the Fed’s action. ARMs are more sensitive to short-term rate shifts, and as a result, demand has surged. Applications for ARMs have reached their highest share since 2008, now making up about 13% of all mortgage applications. On average, ARM rates are roughly 75 basis points lower than 30-year fixed loans, making them attractive to certain borrowers.

Current Mortgage Market Trends

According to Freddie Mac, average mortgage rates for the week ending September 18, 2025, were:

• 30-Year Fixed: 6.26%
• 15-Year Fixed: 5.41%

Despite higher rates compared to last year, mortgage applications for home purchases rose 3% from the previous week and are up 20% year-over-year. However, this increased interest has not yet resulted in a notable rise in completed home sales.

Conclusion

The Fed’s rate cut had limited influence on fixed-rate mortgages, which were already priced for the move, but it boosted demand for ARMs. While buyer activity is picking up, it has not yet translated into a significant increase in closed sales.

Reference:
Tracey, M. D. (2025, September 19). Why Didn’t Mortgage Rates Fall More After the Fed Rate Cut? National Association of REALTORS®. Retrieved from NAR