Should You Refinance Your Mortgage After the Fed’s Interest Rate Cut?

Now that the Fed has made its first big move in years to lower interest rates, a question has emerged for homeowners who borrowed money for a mortgage recently and are paying a lot in interest: Should I refinance?

Let’s break it down.

How Mortgage Rates Work

Mortgage rates do not move in tandem with the Fed’s actions, but they are influenced by them. They largely track the yield on 10-year Treasury bonds. Those are driven by a variety of factors, including the outlook for inflation, the Fed’s decisions and how investors react.

The average interest rate for 30-year fixed mortgages was 6.09 percent on Thursday, according to Freddie Mac, down from 6.2 percent last week and 7.19 percent a year ago. They had been as high as 7.79 percent 11 months ago.

Rates have been volatile in recent years, and they often shift in anticipation of the Fed’s next move. But they also react to broader economic news.

“Long-term mortgage rates will fall if economic data indicates a weakening economy,” said Melissa Cohn, regional vice president of William Raveis Mortgage, a mortgage lender in Shelton, Conn. “Employment numbers will be key.”

The Fed is probably not done lowering its benchmark rate. Yesterday, it indicated that there may be another half point in cuts coming this year. Its next announcement will come during the first week in November.