The Fed Cut Rates. So Why Are Mortgages Still High?

Because mortgages don’t move with headlines they move with fear.

Author

Mike Ugarte
October 21, 2025 • Estimated Reading Time: 3 minutes

Everyone’s Asking: Where’s the Relief?

This year alone, the Fed has cut interest rates three times.

Inflation has dropped from a peak of 9% to under 3%.

So why are you still staring at mortgage quotes north of 6%?

Short answer: Mortgage rates aren’t tied to the Fed the way most people think.

Here’s What’s Really Driving Your Mortgage Rate

The Fed sets the federal funds rate: that’s the overnight rate banks charge each other. It impacts short-term stuff fast: credit cards, car loans, business lines of credit.

But mortgage rates? They’re tied to long term expectations.

Specifically, they track the 10 year Treasury bond, because most mortgages (15 or 30 year fixed) are long term bets.

Right now:

  • The 10-year Treasury yield is sitting around 4.2%

  • Mortgage rates are floating between 6.3%–7%

  • That 2–3% gap between the two? It’s called the spread

Normally, that spread sits around 1.5–2%. But lately, lenders are building in a bigger cushion.

Why?

  1. Inflation hasn’t cooled everywhere – Rent, insurance, and services like healthcare are still rising fast.

  2. The Fed stopped buying mortgages – They used to be the biggest buyer of mortgage backed securities, which kept spreads tight. Now? Private investors want higher returns.

  3. Uncertainty is everywhere – Between wars, political noise, and market volatility, investors are spooked. When they’re nervous, they want more protection and that shows up in your rate.

Bottom line: Even though inflation is technically “better,” lenders still see risk. So they’re pricing that in.

What I’d Tell a Friend

Look, we’re not going back to 3% mortgages.

That was a perfect storm during COVID: low rates, high Fed support, zero fear.

That’s not today. If you’re waiting for that to come back, you’re gonna be on the sidelines for a long time.

If you’re buying now, work with the rates we’ve got. Adjust your price range, explore different neighborhoods, and leave room to refi if rates drop later.

Don’t try to time the market, just be smart in the one we’re in.