Mortgage Rates after Fed Cut: Lower Payments in October 2025?

Mortgage rates have taken a turn for the better following the Federal Reserve’s decision to cut its benchmark rate by 0.25% in September 2025.

The national average for 30-year fixed mortgages has dipped to 6.44%, down from 6.59% a week earlier, marking the lowest point of the year.

This shift is a promising sign for potential homebuyers, even as refinance rates inch higher to 7.07%.

So, what exactly does this mean for borrowers, and how might things look moving forward? Let’s dive into how the Fed’s decision is shaping mortgage trends this October.

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Key Takeaways

1. Mortgage Rates Fall: The 30-year fixed average dropped to 6.44%, helping new buyers save on monthly payments.

2. Refinance Rates Rise: Higher refinance costs mean homeowners must calculate savings carefully.

3. Outlook Remains Steady: Experts expect gradual declines through 2026 as inflation cools.

The Fed’s Rate Cut and Its Immediate Impact

When the Federal Reserve trims interest rates, it doesn’t directly set mortgage rates, but the effects ripple through quickly.

On September 17, 2025, the Fed lowered its benchmark federal funds rate to 4.00%-4.25%. This move was meant to stimulate borrowing and spending after months of economic balancing between inflation and employment concerns.

Why the Cut Matters

The federal funds rate influences Treasury yields, which are the main anchor for mortgage pricing.

Since the cut, the 10-year Treasury yield has eased slightly to 4.12%, pulling down mortgage rates in response.

However, the spread between Treasury yields and mortgage rates remains unusually wide, meaning lenders are still cautious about long-term risks.

Recent data from Zillow shows:

• 30-year fixed rate: 6.44%, down 0.15% from last week

• 15-year fixed rate: 5.59%, down 0.06%

• 5-year ARM: 7.00%, unchanged

Even this modest drop makes home loans more affordable. For example, on a $350,000 mortgage, the difference between 6.59% and 6.44% saves roughly $35 a month or about $12,600 over 30 years.

The Bigger Picture

This cut was the first in nine months, signaling the Fed’s cautious confidence that inflation now hovering around 2.9% is easing.

Still, the combination of strong GDP growth and a softening labor market keeps policymakers walking a tightrope.

Their next moves will determine whether mortgage rates continue sliding or stall in the coming months.

Read Also: Fed Warns Inflation Might Continue: Details

Mortgage and Refinance Rate Trends in October 2025

Mortgage shoppers are finally catching a break. The recent rate dip opens doors for more affordable home financing, especially for first-time buyers. But not all loan types are moving in the same direction.

Current Rate Movements

Here’s a snapshot of this week’s averages:

• 30-year fixed mortgage: 6.44%

• 20-year fixed mortgage: 6.34%

• 15-year fixed mortgage: 5.59%

• 7-year ARM: 7.27%

Government-backed loans tell a different story:

• FHA 30-year fixed: 7.25% (+1.45%)

• VA 30-year fixed: 6.18% (+0.12%)

While purchase mortgage rates are falling, refinance rates are rising. The 30-year fixed refinance average climbed to 7.07%, suggesting many lenders are focusing on new loans rather than refinances.

For homeowners who locked in rates during the peaks of 2023 and 2024, it may not yet be the best time to refinance.

Why the Mixed Signals?

This contrast reflects how lenders interpret economic uncertainty. Even though the Fed has eased rates, lenders still price in risk from inflation and the potential for market swings.

Until the mortgage-Treasury spread normalizes, rate relief will likely come in small steps rather than dramatic drops.

What Borrowers Should Watch

Borrowers should keep an eye on:

• Inflation reports such as CPI and PCE indexes

• Job data to gauge economic strength

• Future Fed meetings, which could include additional cuts later in 2025

If inflation continues cooling and Treasury yields drift lower, more meaningful mortgage rate drops could follow by early 2026.

Read Also: Why Did the Fed Decide to Cut US Interest Rates?

What Experts Predict for Late 2025 and Beyond

Industry experts are cautiously optimistic about the direction of mortgage rates. While no one expects a quick return to the ultra-low rates of 2020, gradual relief seems likely.

Expert Forecasts

• National Association of REALTORS®: Predicts rates averaging 6.4% in late 2025 and 6.1% in 2026.

• Fannie Mae: Forecasts rates could dip to 5.9% by 2026, improving refinancing opportunities.

• Mortgage Bankers Association: Expects a decline from 6.7% to 6.5% by the end of 2026.

These projections suggest that borrowers might see better deals next year, especially if inflation continues its steady downward path.

A Realistic View

It’s worth noting that even small rate changes make a difference. A 0.25% reduction could save a borrower around $50 a month on a $400,000 loan. Over decades, that adds up.

For new buyers, this means slightly more flexibility in home budgets, and for existing homeowners, a reason to keep watching the market for future refinancing opportunities.

The Market’s Next Phase

Analysts also expect that if the Fed cuts rates again in November or December, mortgage rates could inch closer to 6% by early 2026.

While unlikely to fall below that mark soon, the direction is positive, signaling a steadier and more predictable housing market ahead.

Read Also: Did the Fed Rate Cut Finally Happen? What Powell’s Decision Means

Conclusion

The Fed’s September rate cut has brought welcome, if modest, relief to borrowers this October. With 30-year fixed rates easing to 6.44%, homebuyers can breathe a little easier, even though refinancing remains pricey.

Market watchers anticipate a slow but steady decline through 2026 as inflation stabilizes and Treasury spreads normalize.

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FAQ

Why did mortgage rates drop in October 2025?

Rates fell following the Federal Reserve’s September rate cut, which lowered Treasury yields and eased borrowing costs.

Will mortgage rates keep falling?

Experts expect gradual declines through 2026 as inflation cools, though large drops are unlikely.

Are refinance rates also dropping?

Not yet. Refinance rates have actually risen slightly, reflecting lender caution and ongoing market risks.

Should I buy a home now or wait?

If you find a good rate and affordable property, buying now makes sense. Waiting may bring lower rates but higher home prices.

How does the Fed’s decision affect long-term mortgage rates?

The Fed’s moves indirectly shape mortgage rates by influencing bond yields. Rate cuts generally lead to lower long-term borrowing costs over time.

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