When you hear that the Federal Reserve has lowered interest rates, it’s natural to wonder how that will impact your home loan. The truth is—it depends on the type of financing you have.
A Fed rate cut doesn’t always translate into lower mortgage rates, but it often does affect other types of borrowing, like your Home Equity Line of Credit (HELOC).
Fixed-Rate Mortgages Don’t Move with the Fed
If you have a fixed-rate mortgage, your interest rate and monthly payment won’t change. That’s one of the biggest benefits of locking in a fixed rate—you get stability regardless of what the Fed does. Even if rates in the economy go up or down, your mortgage stays the same.
Mortgage Rates Follow a Different Path
Mortgage rates are influenced more by the bond market (specifically the 10-year Treasury yield) than by the Fed’s short-term rate decisions. While sometimes a Fed cut can create downward pressure on mortgage rates, it isn’t a one-to-one relationship. You might not see your mortgage rate change at all just because of this announcement.
HELOCs Are a Different Story
If you have a Home Equity Line of Credit (HELOC), that’s where the Fed’s move really comes into play. HELOCs are typically tied to the prime rate, which moves in step with the Fed’s rate changes. That means:
- When the Fed lowers rates, the interest rate on your HELOC usually goes down, making your monthly payments a little easier.
- On the flip side, when the Fed raises rates, HELOC payments typically go up.
So, while your fixed mortgage might not budge, your HELOC payment could shift fairly quickly after a Fed announcement.
What This Means for You
- If you’re thinking about refinancing your mortgage, don’t assume a Fed cut automatically means big savings—it’s worth checking current rates with a local lender.
- If you have a HELOC, keep an eye on your statement in the coming months. You may notice a welcome drop in your interest rate and minimum payment.
At the end of the day, Fed rate changes ripple through the economy in different ways. Understanding how they impact your specific type of loan can help you make smarter financial decisions.
If you’d like to review your mortgage or HELOC to see how today’s rate environment affects you, let’s talk.