In an exciting development for the economy, the Federal Reserve just announced its first interest rate cut since 2020, lowering the rate by half a percentage point. As headlines about this decision spread, local Realtor Carrie Godbold is reminding homebuyers of an important fact: **the Federal Reserve rate is NOT the same as your mortgage interest rate.**  However, Godbold says, rates are down by 1.5% from their peak just months ago. 

The Federal Reserve cut its key interest rate to around 4.8%, down from a two-decade high of 5.3%. This move reflects a shift in focus from fighting inflation to supporting the slowing job market. While this sounds like good news, it's essential to understand that this federal rate influences many aspects of borrowing, but **not directly mortgage rates.**

The Fed rate affects short-term loans, such as credit cards, auto loans, and the interest banks charge each other for overnight borrowing. **Mortgage interest rates**, however, follow a different path.

Mortgage rates are tied to the bond market, specifically to mortgage-backed securities (MBS). These securities function similarly to bonds and trade on the market, influenced by investor demand. As David Talbert, a Baton Rouge mortgage loan originator, explains, "The bond market did a great job of predicting what the Fed would do today. This rate cut has already been priced into the mortgage market for over a month and a half."

In other words, while the Fed’s decision is making news now, **mortgage rates have already been adjusting for weeks** in anticipation of this move. This means that homebuyers are unlikely to see a big, immediate change in mortgage rates following the Fed's decision.

As of now, the national average for mortgage rates is hovering around 6%, sometimes even between 5.8% and 5.9%, which is a drop from the high levels seen in 2022. Just a few months ago, the national average was a staggering 7.63%. 

For buyers looking at a $300,000 home, the difference between the rates seen earlier this year and today's lower rates do result in significant savings. For instance, at 7.5%, the monthly payment on such a home would be $270 more than at today’s rate. For a home price of $550,000, that savings increases to about $550 per month since early summer. 

It’s important to remember that mortgage rates are not directly set by the Federal Reserve. Mortgage rates fluctuate based on investor activity in the bond market, particularly how MBS perform. These rates are often priced weeks or months ahead of any Federal Reserve decision.

Talbert stresses, "The Fed decides the rate at which banks borrow from one another. This doesn’t directly impact mortgage rates, but it does have a broader influence on the economy, including factors that might affect the bond market."

Despite the Fed’s rate cut, homebuyers should still expect mortgage rates to stay around the 6% range in the near term. The bond market has already absorbed the impact of this decision, and while it's good news for short-term loans, it doesn’t mean mortgage rates will suddenly plummet.

For potential buyers, it’s always wise to monitor the market closely and consult with a lender to understand how broader economic trends might impact your home purchase plans. Though rates are lower than a year ago, they're unlikely to drop much further as a direct result of this Fed decision.