Will the Fed’s Rate Cut Lower Mortgage Rates in 2026?

By May Jackson

May Jackson is licensed in 2 states. She started working with Mortgage Lending and moved to the Real Estate transactions in 2010.

If you saw the news about the Federal Reserve cutting interest rates and assumed mortgage rates were about to drop, you’re not alone. Many buyers and homeowners hear that headline and expect borrowing costs to fall right away. It feels logical, but mortgage rates don’t work that way. Relying on that assumption can cause people to delay decisions or miss opportunities that were already available to them.

I want to clear up how this actually works, because understanding it puts you in a stronger position whether you’re buying, refinancing, or deciding to wait.

Why don’t mortgage rates don’t follow the Fed directly? The Federal Reserve does not set mortgage rates. What the Fed controls is the federal funds rate, which affects short-term lending, such as credit card rates and savings rates, as well as how banks lend to each other overnight. Mortgages are long-term loans, so they respond to different forces.

Mortgage rates are closely tied to the bond market, specifically the 10-year Treasury yield. Lenders use that yield as a benchmark when pricing mortgage loans because it reflects long-term investor expectations. When people hear about a Fed rate cut and expect mortgage rates to move right away, they’re confusing two different systems.

What actually drives mortgage rates? Mortgage rates move based on market expectations, not headlines. Investors look at inflation trends, job growth, and economic strength to decide where they believe the economy is headed. Those expectations influence how money flows into or out of bonds.

When investors feel confident and inflation appears under control, bond demand often increases, yields tend to fall, and mortgage rates may follow. When inflation remains stubborn or economic data sends mixed signals, investors hesitate, yields stay elevated, and mortgage rates hold their ground.

This is why the Federal Reserve can cut rates, and mortgage rates barely move. Lenders aren’t reacting to the announcement itself. They’re reacting to whether the bond market believes that the cut will actually change the broader economic picture.

Why does waiting for the perfect moment often backfire? I see many buyers and homeowners wait for a dramatic drop in rates before making a move. They expect a clear signal or a sharp decline that tells them it’s finally time. In reality, mortgage rates rarely move that way.

Even when a Fed cut helps mortgage rates over time, the change usually happens slowly. It takes consistent progress on inflation, softer economic data, or a shift in investor confidence to create lasting downward pressure. One announcement alone doesn’t trigger that chain reaction. If the bond market doesn’t move, mortgage rates won’t either. Waiting for rates to crash can leave people stuck on the sidelines while opportunities pass by.

What does this mean for you? If you’re buying a home, the most important question isn’t where rates might go next. The real question is whether the payment works for your budget today and whether the purchase fits your long-term plans.

If you’re refinancing, the decision should be based on how the new loan improves your overall financial position, not on trying to hit the lowest possible rate. Mortgage decisions are personal and strategic. They work best when they’re based on numbers, not predictions.

Understanding mortgage rates shouldn’t feel confusing. With the right information and a clear plan, you can make confident decisions that fit your budget and long-term goals. If you’re thinking about buying or refinancing and have questions, feel free to call or text me at 303-335-9209 or email me at mayjacks@kw.com. I can help you understand today’s rates and decide on the smartest path forward.