Stock Market Insights: Mortgage rates are rising despite Fed cuts—here’s why

Dr. Richard Baker, AIF®, is the CEO and executive wealth advisor at Fervent Wealth Management.

My wife and I bought our first house in 1997 for $23,000 and had a 7.5% mortgage rate. Even though the loan was small, it was still scary for a new finance guy and a school teacher. A lower interest rate would have really helped us out. We don’t worry so much about rates for ourselves anymore, but we wish our kids could get lower rates to make their loan payments a little easier to swallow.

When the Federal Reserve (Fed) cut the federal funds rate by 25 basis points last week, many people expected mortgage rates to start falling fast. Sadly, for many potential homebuyers, it isn’t that simple.

The Fed sets the overnight banking rate, which is used as a baseline for other loans, but is not used for mortgage rates. The baseline for mortgage rates is the 10-year U.S. Treasury yield, because 10 years is the average length of time homeowners hold their mortgages before refinancing.

It may be surprising to know that mortgage rates have risen somewhat since the Fed lowered its key rate. Bankrate reports that the national average for a 30-year fixed mortgage rate is 6.38% and a 15-year fixed mortgage rate is 5.67% as of September 24, 2025.

It is actually investors who influence the long-term treasury yields. For instance, when investors are concerned about long-term inflation, growth and/or the overall economy, the 10-year rate rises because investors demand a higher return (yield) for holding that investment for a long time, which leads to borrowing becoming more expensive for new mortgages.

This feels a little like what happened in September 2024 when the Fed unexpectedly cut its rate by half a percentage point. The following two months saw the 10-year Treasury yield rise by about half a point, and mortgage rates jumped about three-quarters of a percent.

Right now, long-term bond investors are demanding a higher yield because they are concerned that their earnings from treasuries aren’t going to be enough to keep up with rising inflation. This investor concern is driving up yields and dragging mortgage rates with it. But that could change. Investors might respond to the Fed’s moves and begin to feel like inflation is mostly under control. In that case, the 10-year yields would be lower, and mortgage rates might also start to drop and revive the housing market.

If the Fed can convince investors that it has a good handle on the economy and inflation, mortgage rates may drop, as they did before the latest Fed meeting. The bottom line for homebuyers on the sidelines waiting for rates to drop is that mortgage rates are subject to several unpredictable factors, and the Fed is just one of them.

Our first mortgage payment was only $180 a month, which is now what we sometimes pay for dinner on a nice date night. High rates aren’t hurting those who are further along in their careers, but they greatly affect young married couples and lower and middle-income families. Hopefully, rates will slip below 5% soon.  

Have a blessed week!

www.FerventWM.com

Securities and advisory services are offered through LPL Financial, a registered investment advisor and member of FINRA/SIPC.

Opinions voiced above are for general information only and not intended as specific advice or recommendations for any person. All performance cited is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested in directly.

The economic forecast outlined in this material may not develop as predicted and there can be no guarantee that the strategies promoted will be successful.

Fervent Wealth Management is a financial management and services entity in Springfield, Missouri.