Refinance mortgage rate 2025: The Federal Reserve has made its second interest rate cut of the year, and even though the federal funds rate doesn’t directly drive mortgage rates, homeowners are curious to know if now is a good time to refinance their mortgage.

The Fed effect on mortgage rates

The Fed uses short-term interest rates to influence bond markets and guide the economy. After raising rates to slow inflation, it started cutting them in late 2024 to adjust economic growth, as per a report. Then it waited nine months before making two cuts this year, with another expected in December.

However, mortgage rates had already started falling before the latest meeting. The 10-year Treasury yield, often seen as a proxy for mortgage rates, had moved closer to 4%, and mortgage rates followed, easing toward 6%, as per a Yahoo Finance report.

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How low will mortgage rates go

Most housing market analysts expect mortgage rates to stay slightly above 6% through the end of the year. Fannie Mae projects rates at 6.3% by the end of 2025 and 5.9% by the end of 2026, reported Yahoo Finance.

While many hope for 3% rates again, it’s worth noting that the long-term average for mortgage rates is above 7.5%. Rates were already in the 7% range when Freddie Mac began keeping records in 1971, as per the report.

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The rule of thumb for refinancing

People often look for easy answers about refinancing. In the past, the general idea was that rates should drop by 2% before refinancing. Later, that became 1%. Some lenders even suggest that a drop of half a percent or a quarter percent could make refinancing worthwhile.

Still, simple rules don’t fit every situation. Financial decisions should be based on actual numbers, not quick estimates.

Five steps to know if refinancing makes sense

• Find out your current interest rate, monthly payment, and credit score.
• Decide if you’ll refinance your balance or take cash out.
• Choose whether your new loan term will match or be shorter than your current one.
• Get estimates of closing costs from one or more lenders.
• Calculate how long it will take to recover those costs through lower monthly payments.

If the time it takes to break even is shorter than the time you plan to stay in your home, refinancing could make sense. If it’s longer, it may not.

When a refinance might not be the best move

According to Realtor.com, about 82% of homeowners currently have mortgage rates at 6% or lower. For many, refinancing may not offer much savings. Instead, some homeowners use their equity through a second mortgage, such as a home equity line of credit (HELOC), as per the Yahoo Finance report.

A HELOC allows homeowners to keep their existing low mortgage rate while borrowing against their home’s value when needed. It can be repaid and reused as necessary. Many lenders also offer introductory rates that are lower before a variable rate takes effect.

FAQs

Why did the Federal Reserve cut interest rates again?
The Fed cut rates to help guide the economy after raising them to slow inflation.

Does the Fed’s rate cut directly affect mortgage rates?
Not directly. Mortgage rates tend to follow the 10-year Treasury yield, not the Fed funds rate.