Why Homeowners Are Still Locked In Despite a Fed Rate Cut on the Horizon

As of Sept. 4, 2025, the current average refinance rate on a 30-year, fixed-rate home loan stands at 6.56%, according to Zillow data [4]. This marks a marginal increase from the previous day’s report and reflects ongoing trends of elevated rates in the post-pandemic housing market. The data also reveals variations across different loan types and terms, with conventional, jumbo, FHA, and VA mortgages each showing distinct average rates. For example, the 15-year conventional rate is at 5.71%, while the 30-year jumbo rate stands at 6.90%.

The broader mortgage market remains influenced by multiple macroeconomic factors, including the Federal Reserve’s monetary policy, inflation expectations, and the overall health of the U.S. economy. Although the Fed has maintained a tight federal funds rate range of 4.25% to 4.50% since early 2025, the upcoming September 17 meeting is widely anticipated to deliver the first rate cut of the year. According to the CME FedWatch tool, the probability of a rate reduction at this meeting is above 95% [7]. However, despite this expectation, mortgage rates have not yet seen a material decline, and the market remains cautious about translating Fed action into immediate borrower benefits.

Historically, mortgage rates have often moved in anticipation of Fed decisions, as seen in September 2024 when a 50-basis-point cut preceded a drop in average rates. This dynamic suggests that lenders may begin adjusting their rates ahead of the official September 17 announcement [7]. Yet, even with a rate cut on the horizon, the broader trend shows only gradual movement. From January to August 2025, the average 30-year mortgage rate fell from 7.04% to 6.56% [7], indicating a modest easing but not a dramatic shift.

Refinancing activity continues to be affected by high rates and the financial profiles of homeowners. According to Redfin, 82.8% of homeowners with mortgages as of Q3 2024 had rates below 6%, creating a “lock-in” effect where many homeowners are reluctant to refinance or move due to the high cost of exiting their current low-rate loans [4]. For those considering refinancing, the general rule of thumb remains that a rate at least one percentage point lower than the current mortgage rate justifies the upfront costs of closing, which typically range from 2% to 6% of the loan amount [4].

The Federal Reserve’s balance sheet operations also play a role in shaping mortgage rates. The Fed’s gradual reduction in its bond holdings—allowing assets to mature without replacement—has been identified as a factor that could put upward pressure on rates. This contrasts with the more immediate impact of federal funds rate adjustments but highlights the complexity of how monetary policy influences mortgage lending conditions [1].

Looking ahead, the market remains in a state of cautious optimism. While the September Fed meeting could offer the first significant rate cut of 2025, the broader economic landscape—particularly inflation and labor market dynamics—will continue to shape lending conditions. Borrowers with strong credit and favorable debt-to-income ratios are advised to monitor rates closely and begin preparing for refinancing opportunities, even as the full impact of policy shifts may take time to materialize.

Source:

[1] Current mortgage rates report for Sept. 1, 2025 (https://fortune.com/article/current-mortgage-rates-09-01-2025/)

[2] Mortgage and refinance interest rates today, September 3, 2025 (https://finance.yahoo.com/personal-finance/mortgages/article/mortgage-refinance-rates-today-wednesday-september-3-2025-100052541.html)

[3] Mortgage Rates Slightly Higher to Start September (https://www.mortgagenewsdaily.com/markets/mortgage-rates-09022025)

[4] Current refi mortgage rates report for Sept. 4, 2025 (https://fortune.com/article/current-refi-mortgage-rates-09-04-2025/)

[5] United States MBA Mortgage Refinance Index (https://tradingeconomics.com/united-states/mba-mortgage-refinance-index)

[6] Current refi mortgage rates report for Sept. 1, 2025 (https://fortune.com/article/current-refi-mortgage-rates-09-01-2025/)

[7] Why mortgage rates may fall before the September Fed ... (https://www.cbsnews.com/news/why-mortgage-rates-may-fall-before-september-2025-fed-rate-cut/)