The Fed Cut Rates… So Why Is Your Mortgage Still Above 6%?

The Federal Reserve has cut rates three times this year.

Inflation has cooled from 9% to under 3%.

Yet your mortgage rate is still sitting stubbornly above 6%.

What gives?

Let’s break it down.

The Fed Doesn’t Control Mortgage Rates (Not Directly, Anyway)

The Fed sets something called the federal funds rate—that’s the interest rate banks charge each other for overnight loans.

When the Fed cuts this rate, it makes short-term borrowing cheaper. That’s why you’ll see lower rates on things like credit cards, car loans, and business lines of credit pretty quickly.

But mortgages are a different beast.

How Mortgage Rates Actually Work

Mortgages are long-term loans—usually 15 or 30 years. Lenders don’t base those on overnight borrowing costs. Instead, they follow the 10-year Treasury bond, which reflects where investors think the economy is headed over the next decade.

Right now, the 10-year Treasury yield sits around 4.2%, while average mortgage rates hover above 6%.

That difference is called the spread.

Think of it like a restaurant markup (hold the mayo). The restaurant buys ingredients at wholesale and charges you retail to cover rent, staff, spoilage, and profit.

Lenders do the same thing—they borrow money at Treasury rates and tack on a “markup” to cover costs and risk.

In normal times, that markup is about 1.5–2 percentage points. Right now, it’s closer to 3. And that extra cushion? It’s coming out of your pocket.

3 Reasons Mortgage Rates Are Still High

1. Inflation Isn’t Fully Beaten
   Sure, inflation has cooled overall, but key costs—rent, insurance, childcare, healthcare—are still climbing faster than wages. Lenders see that and hedge their bets with higher rates.

2. The Fed Stopped Buying Mortgages
   During the pandemic, the Fed was the biggest buyer of mortgage-backed securities, keeping rates artificially low. Now that the Fed’s out, private investors call the shots—and they want higher returns for taking on that risk.

3. Investors Are Nervous
   Between geopolitical tensions, massive government debt, and an uneven housing market, investors are jittery. And when investors get nervous, they demand higher returns… which means higher mortgage rates for everyone.

So… When Will Rates Actually Drop?

Short answer: Not soon.

Rates will only come down when three things happen:

• Inflation stabilizes for real

• The Fed signals long-term support

• Investors feel confident again

None of those boxes are checked yet. Even optimistic forecasts don’t see rates dipping below 6% until late 2026.

For perspective, today’s 30-year mortgage rates (~6.3%) feel high compared to the 3% lows during COVID. But the 50-year historical average is 7.7%, and back in the early 1980s, rates hit a wild 18%.

So yeah… it could be worse.

What Should You Do If You Want to Buy (or Refi)?

Waiting for 3% mortgage rates again is like waiting for gas to drop back to $1.25—it’s not happening.

Instead, make decisions that fit today’s reality:

• Buying: Adjust your budget or explore new neighborhoods.

• Refinancing: Don’t wait for rock-bottom rates—consider acting if you see even a half-point drop.

The market you’re in is the market you’ve got. Make it work for you.

Bottom line: The Fed can cut rates all it wants, but until inflation chills out, investors relax, and the mortgage market finds its groove again—expect mortgage rates to stay higher for longer.

So play the hand you’re dealt… and play it smart.