Mortgage rates are finally dropping, and it is about time. In mid-September 2025, the average 30-year fixed mortgage fell to 6.13%, the lowest it has been since late 2022. Some loans, like FHA and VA options, dropped even further, with VA loans touching 5.68%.

Of course, this is a sigh of relief for buyers who have been squeezed by high borrowing costs for years.

The drop followed the Federal Reserve’s decision to cut its key interest rate by 25 basis points, its first cut of the year. That move helped push rates down, but don’t expect this to be a free fall. Mortgage rates don’t always follow the Fed’s lead, and history shows they can bounce back up just as fast.

What is Driving Mortgage Rate Changes?

The Federal Reserve plays a big role, but it is not the only one calling the shots. Mortgage rates tend to follow the long-term bond market, especially the 10-year Treasury yield. So, even if the Fed keeps trimming rates this year, two more cuts are expected, but it doesn’t guarantee mortgage rates will keep dropping.

Mart / Pexels / Inflation ticked up in August, and that is a red flag for mortgage rates. If it keeps rising above the Fed’s 2% target, rates could stall or even rise again.

A shaky job market could also spook investors, adding pressure to keep rates higher than homebuyers would like.

However, investor confidence plays a big part. Mortgage rates react to news, emotion, and even global tension. Trade policy shifts or political unrest can make investors nervous, which often sends rates higher. Right now, the market is edgy, and that makes mortgage rates unpredictable.

Even with lower rates, the housing market isn’t getting much easier. Prices remain high, and supply is tight. That’s keeping affordability out of reach for many. Lower mortgage rates help, but not if home prices keep climbing.

If buyers back off, that could change the balance, but it might not happen fast.

What is Coming in Late 2025 and Beyond?

For the rest of 2025, don’t expect a huge shift. Experts predict rates will float between 6.3% and 6.4% by year-end. That is slightly higher than where they are now, but still better than the 7%+ range we saw in early 2025.

Morgan Stanley thinks rates might dip a bit more, but not enough to move the market drastically.

RDNE / Pexels / Looking into 2026, things could ease up a little more. If the economy cools and GDP growth slows, long-term Treasury yields may fall.

That could pull mortgage rates down too, helping with affordability. But don’t count on a return to the days of 2-3% rates. Those were the outliers, not the norm.

What Should You Do If You are Buying or Refinancing?

If you have a mortgage rate of around 7% or higher, now might be the time to refinance. Dropping to 6% or below could mean serious savings over the life of your loan. Still, refinancing isn’t free. Factor in closing costs and how long you plan to stay in the home before jumping in.

Waiting for mortgage rates to hit 5% or lower isn’t the best strategy. There is no clear sign that we will get there anytime soon. So, it is ideal to focus on what works for you now. If your finances are solid and you find the right place, don’t let small rate swings hold you back.