Mortgage rate declines are raising the likelihood of a refi surge

With the Federal Reserve all but locked into a 25 basis-point cut on Wednesday after the conclusion of its two-day meeting, the question for housing market professionals is how much lower mortgage rates could go after their recent tumble.

At HousingWire’s Mortgage Rates Center on Tuesday, long-term borrowing costs continued the plunge they’ve been on since topping out near 7% in late July. Rates for 30-year conforming loans averaged 6.45% — an eye-popping 19 bps lower than one week ago.

Rates for 30-year jumbo loans were down 3 bps during the week to 6.26%, while rates for 30-year Federal Housing Administration (FHA) loans shed 13 bps to average 6.22%. Mortgage News Daily showed 30-year fixed rates at 6.13% on Tuesday.

Refi wave is swelling

While lower rates are beneficial for potential homebuyers, the mortgage industry may start to see the leading edge of a refinance wave that could propel business through the end of 2025. ICE Mortgage Technology reported earlier this month that 3.1 million homeowners would save by refinancing, up 55% in a two-week span.

“The refinance market is heating up in a way we haven’t seen for months,” Michael Gaines, a Detroit-based senior vice president of capital markets for Cardinal Financial, told HousingWire via email. “As soon as rates dipped below 6.5%, and closer to 6% for many government-backed loans, we saw refinance applications jump.

“That trend should only expand into year-end if rates remain in this range, because more homeowners will cross into ‘in the money’ territory.”

Greg Schwartz, CEO of New York-based Tomo Mortgage, told HousingWire that the market is “on the cusp of a meaningful refi wave.” People who purchased homes in the past two years at rates of 7% to 8% have prime opportunities to save.

“But refinancing is not free,” Schwartz cautioned. “There are fees involved, so rates need to fall far enough below someone’s existing loan to make the math work ex-fees.”

‘Breathing room’ for buyers

Rates of 6% or less are likely to spur more buyers and sellers into action. Existing-home sales have been sputtering for much of 2025, although data from the National Association of Realtors showed improvement in July. Existing sales rose 2% from July and were 0.8% higher on an annualized basis.

“Buyers are highly sensitive to rates right now; we found that 85% of active homebuyers postponed their search waiting for rates to drop, and most still believe today’s rates are unusually high,” Schwartz said.

“Lower rates are giving buyers some real breathing room. On a $400,000 mortgage, a half-point drop saves a little more than $100 a month, or about $1,200 a year. That kind of change in the monthly payment tends to outweigh the increases we are seeing in taxes and insurance in most markets.”

New-home sales have returned to earth, dropping 8.2% year over year in July, although this segment may be a better option for some buyers. And many Midwest markets are bucking this trend. Across all types of single-family homes, HousingWire data found that metros like Minneapolis, Milwaukee and Grand Rapids, Michigan, are seeing homes sell up to 83% faster than the national average.

“Rising taxes and insurance do create pressure, but they don’t erase the benefits of a lower rate,” Gaines said. “We look at the whole picture with each borrower. Sometimes that means helping them compare different insurance carriers, or structuring the loan to minimize monthly costs.

“What we’re seeing is that affordability is not one-dimensional. A small rate improvement, paired with the right loan program and smart planning, can still make homeownership possible even when escrow costs are rising. It’s less about one factor canceling another out, and more about helping buyers layer the right solutions together.”

Further cooling of rates?

According to the CME Group’s FedWatch tool, interest rate traders are nearly unanimous that the Federal Open Market Committee will cut benchmark rates by 25 bps on Wednesday, placing them in a range of 4% to 4.25%.

But the optimism doesn’t stop there. About three-quarters of this group expects another 25-bps cut at the end of October, while about 70% anticipate a third cut in December. All told, if these policy moves materialize and mortgage rates move in tandem, the housing market could be working with rates near 5% by early 2026.

“It’s important to remember: a Fed move doesn’t equal a mortgage move,” said Charles Goodwin, a vice president at national real estate investment lender Kiavi. “Mortgages track the 10-year Treasury, and that’s still being pulled higher by inflation and government spending concerns. Even if the Fed trims short-term rates, that doesn’t guarantee relief for homebuyers.”

Goodwin went on to say that the “biggest mistake” he sees among prospective purchase and refinance borrowers is “waiting for the perfect rate.” Anyone who’s ready to buy now and is able to afford the monthly payment should lock in their rate right away.

“Purchase buyers should lock sooner, because certainty matters when you’re under contract and heading to closing,” he said. “On the flip side, if you’re still early in your search, you’ve got more time to see if late-year declines materialize.

“Refinancers have more flexibility. They’re not racing against a deadline, so they can afford to wait and see if small improvements come through later this year. But don’t expect another pandemic-era plunge. The most you’re likely to see is a quarter-point here or there.”