US Federal Reserve Cuts Rates Again, Mortgage Costs Begin to Ease

The U.S. Federal Reserve has lowered interest rates again, cutting its key rate by 0.25 percentage points in December. This is the third cut in 2025. The Fed's target range for the federal funds rate now stands at 3.50% to 3.75%.

Mortgage Rates Show Signs of Decline

Mortgage rates-the interest people pay when they borrow to buy a home-have begun to come down. The average 30-year fixed mortgage rate is now between 6.19% and 6.30%, compared to more than 7% earlier this year.

Refinance loans, which allow homeowners to replace their old mortgage with a new one at a lower rate, average about 6.52%. The 15-year fixed mortgage is around 5.63%, while a popular adjustable-rate mortgage called the 5/1 ARM is close to 5.54%.

Why Mortgage Rates Don't Always Fall Right Away

Many people think mortgage rates drop immediately when the Fed cuts rates. But that's not always true. Here's why:

Mortgage rates are closely linked to Treasury yields. These rates go up or decrease based on what investors think will happen to the economy.

Investors want higher yields (returns) on their money to protect if they think inflation may go up. That makes mortgage rates rise. Investors are willing to tolerate lower returns if they think inflation may slow down and the economy. That makes mortgage rates go down.

So, mortgage rates depend on more than just what the Fed does. They also depend on how investors feel about the future.

Adjustable loans move more quickly

When the Fed cuts rates, adjustable-rate mortgages (ARMs) and home equity lines of credit (HELOCs) react swiftly. These loans are tied to short-term rates like the prime rate (the rate banks charge their best customers) or SOFR (a benchmark based on the cost of borrowing money overnight).

The prime rate normally goes down right away when the Fed lowers its rate. That means that ARMs and HELOCs can get cheaper in one or two billing cycles.

Mortgages with fixed rates move slowly.It takes longer for fixed-rate loans, such as 30-year and 15-year mortgages, to change. They depend on long-term Treasury yields, which move based on investor expectations about inflation, growth, and demand for bonds. That's why fixed mortgage rates may take days or weeks to decline after a Fed cut. Sometimes they don't fall at all if investors remain worried about the economy.

Current Mortgage Levels

As of December 10, 2025, the average 30-year fixed mortgage rate dipped to about 6.09%, down slightly from the previous day. The 15-year fixed rate fell to 5.49%. Freddie Mac reported 30-year averages at 6.19% as of December 4, lower than a year ago.

Other loan types also show easing costs:

15-year fixed loans average about 5.33%.
FHA loans, popular with first-time buyers, average around 5.99% for 30 years.
VA loans for veterans average about 5.57% for 30 years.

What Borrowers Should Expect

For homebuyers, lower rates mean slightly more affordable monthly payments compared to the highs earlier this year. A 30-year mortgage near 6.20% is still higher than the very low rates seen during the pandemic, but it is much better than the 7.50% levels reached in 2025.

Refinancing is becoming attractive again for homeowners with loans above today's averages. Analysts say refinancing only makes sense if the savings are bigger than the closing costs, but more households now qualify as rates stabilise.

Housing Market Outlook

Economists expect mortgage rates to keep easing if inflation continues to cool. Some forecasts suggest 30-year rates could fall below 6% by late 2025 or early 2026.

But challenges remain. Housing supply is tight, prices are high, and lenders are cautious. A Reuters survey conducted among housing experts predicts only modest home-price growth into 2026, with affordability still the biggest hurdle for buyers.

What Next?

Inflation is the most important thing for mortgage rates right now. If data suggests that inflation is going down even more, Treasury yields may go down, which would cut mortgage rates. If inflation rises again, yields could go up, which would raise mortgage rates again.

In sum, the Fed's cutbacks help set the direction, but the bond market chooses how much mortgage rates really go up or down.

The Fed's December cut strengthens the downward trend in borrowing costs. Mortgage rates are easing, though not as fast as some borrowers might hope. Homeowners considering refinancing should watch daily rate changes, as costs have already fallen by about half a percentage point compared to last year.

The outlook is cautiously positive: borrowing is becoming more affordable, but housing supply and prices remain tough challenges for buyers.