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September 2025 has finally arrived, and with it, excitement and anticipation surround a new interest rate reduction courtesy of the Federal Reserve. The federal funds rate has remained frozen for all of 2025, following three cuts in the final months of 2024 that left the rate a full point lower than where it started the year. Now, however, with inflation somewhat static and concerns over unemployment, among other items, at the forefront, the central bank is poised to issue a new cut. Currently at a range of 4.25% to 4.50%, the chances of a cut when the bank finishes its next meeting on September 17 currently sit around 90%, according to the CME Group’s FedWatch tool.
And while a cut will impact a wide variety of products and loans, its perhaps most eagerly anticipated in the mortgage and mortgage refinance climate. Rates there are much higher than they were at the start of the decade, so any reductions will be appreciated by borrowers. That said, expectations for cooler mortgage rates will need to be put into proper context, too.
So, how low will mortgage rates actually fall when the Fed cuts rates this September? You may be surprised at the answer. Below, we’ll break down what to know now.
Start by seeing how low a mortgage rate you currently qualify for here.
How low will mortgage rates fall with a September Fed rate cut?
While a Fed rate cut is undoubtedly better for homebuyers and owners than a hike, the first cut to be issued in 2025 is likely to have a muted impact on mortgage rates, at least in the beginning. Here’s why:
Only a marginal cut is expected in September
Last September, mortgage rates plunged right before the Fed announced a larger-than-anticipated 50 basis point cut. That caused mortgage rates to drop to their lowest level in two years. But the Fed rate cut this September is expected to be just 25 basis points, dropping the rate to a range between 4.00% to 4.25%. While that’s a step in the right direction, it’s a minor step at that. And it’s likely to have minimal impact on the mortgage rate climate, at least for the next few weeks.
Compare your current mortgage and mortgage refinance rate offers here to learn more.
Rate cuts may have already been priced in
Lenders don’t need for the Fed to formally take action to change the offers they advertise to savers and borrowers. And many mortgage lenders may have already done just that, preemptively pricing in a rate cut before its formalized. This is why the rate offers you see now, at the start of the month, may not look much different from those you see later in September, once the cut is official. However, this is also why it’s important to shop around for rates and terms, as some banks will offer materially different options than others, based on their approach to Fed policy, among other considerations.
Mortgage rates are impacted by more than just the Fed
Don’t forget that the Fed is just one factor, albeit an important one, that impacts mortgage rates. The 10-year Treasury yield, for example, is also a major influencer. So it’s important to take a broad look at the mortgage rate climate overall to help manage expectations. It’s going to take more than a lower federal funds rate for mortgage rates to decline in a major way.
The bottom line
A lower federal funds rate is a positive development but there are going to need to be multiple rate reductions for the mortgage rate climate to cool in a meaningful way. That said, borrowers aren’t totally powerless either. By improving their credit score, lowering their debt-to-income ratio and by shopping around for rates and lenders, they can better position themselves to locate the lowest mortgage rate around now – and hope that the Fed continues to lower rates in the months to come.
