When the Federal Reserve announces a rate cut, many Greenville homeowners and buyers expect to see immediate savings on their mortgage. After all, if the Fed lowers rates, shouldn’t borrowing get cheaper?
It’s a common misconception — and one we hear from families across the Upstate all the time. The truth is that mortgage rates don’t move in lockstep with the Fed’s decisions. Here’s why.
The Fed Funds Rate vs. Mortgage Rates
First, a quick distinction:
- The Fed funds rate is the short-term interest rate banks charge each other for overnight loans.
- Mortgage rates are long-term interest rates tied much more closely to the bond market — specifically, the 10-year Treasury yield.
So while Fed cuts influence the economy broadly, they don’t directly set mortgage rates.
What Really Drives Mortgage Rates
Several factors shape where mortgage rates land on any given day:
- Bond Market Movements
Mortgage rates tend to track the 10-year Treasury yield. If investors expect higher returns elsewhere, mortgage rates may rise even when the Fed is cutting.
- Inflation Expectations
If inflation is expected to stay high, lenders demand higher mortgage rates to protect their returns.
- Lender Risk Premiums & Uncertainty
During times of economic stress, lenders build in extra margins to protect themselves.
- Supply & Demand for Mortgage-Backed Securities
If investors are eager to buy mortgages, rates may come down. If demand dries up, rates stay elevated.
A Simple Analogy
Think of the Fed funds rate like a thermostat. When the Fed adjusts the setting, it influences the room’s temperature — but the actual temperature (mortgage rates) depends on many other factors: how well the insulation works, whether the windows are open, and how much sunlight is streaming in.
In other words: the Fed sets the stage, but markets decide the show.
Why This Matters for Greenville Homeowners
- Homeowners: Don’t expect lower payments just because the Fed made a cut.
- Buyers: Timing your home purchase around Fed meetings can backfire.
- Refinancers: Focus on broader trends in Treasury yields and inflation, not just headlines about the Fed.
For example, during parts of 2020, the Fed slashed rates to near zero — yet mortgage rates didn’t always fall at the same pace because investor demand and inflation fears offset the cuts.
What You Should Watch Instead
If you’re considering a mortgage move in Greenville or anywhere in the Upstate, keep an eye on:
- 10-year Treasury yields
- Inflation reports
- Lender spreads (margins)
And remember: reviewing your mortgage options once a year is far more effective than waiting on Fed announcements.
The Bottom Line
Mortgage rates are shaped by a web of economic forces, not just the Federal Reserve. Understanding the difference can save you from disappointment — and help you make smarter financial decisions.
At Provista Wealth Advisors here in Greenville, SC, we help families and business owners navigate these dynamics as part of a comprehensive financial plan. If you’re wondering how Fed policy, mortgage rates, or other market shifts might impact your goals, let’s talk.