The Federal Reserve ended the year with a widely anticipated December rate cut, its third of 2025, lowering the federal funds rate to its lowest point since 2022.
The new target range of 3.50% to 3.75% does not directly set mortgage rates, but it influences the broader lending environment.
As markets priced in the Fed’s shift, mortgage rates began easing even before the latest announcement. In fact, just ahead of the October meeting, some lenders briefly touched three-year lows.
Mortgage markets have responded quickly again. The average 30-year fixed mortgage rate has fallen toward the 6 percent threshold, while 15-year rates are tracking near 5.50 percent.
This marks a pronounced drop from the 7+% levels reached earlier this year, a period when borrowers were confronted with some of the most expensive mortgage conditions since the early 2000s.
Even minor rate adjustments have an outsized effect on affordability, particularly on mid-sized and jumbo-adjacent loan balances common in competitive housing markets.
A $500,000 mortgage is a benchmark amount for many buyers in major metro areas. With borrowing costs shifting rapidly, households considering a purchase or refinance are assessing what the latest rate cut means for monthly payments.
Monthly payments on a $500,000 mortgage after the Fed’s December move
At today’s averages, the difference in monthly payments is material.
• 30-year fixed at 6.00 percent: Monthly principal and interest payment of $2,997.75
• 15-year fixed at 5.50 percent: Monthly principal and interest payment of $4,085.42
These figures reflect the most favorable rate environment in nearly two years. Just twelve months ago, the same loan was substantially more expensive.
Comparing today’s costs with January 2025
At the beginning of the year, average mortgage rates were considerably higher, with 30-year loans near 7.04% and 15-year loans around 6.27%. On a $500,000 loan, the corresponding payments would have been:
• 30-year fixed at 7.04 percent: $3,339.96 per month
• 15-year fixed at 6.27 percent: $4,292.57 per month
The monthly savings created by today’s lower rates are significant. Borrowers taking out a 30-year mortgage now pay roughly $342 less per month, or more than $4,106 annually, than they would have in January. On a 15-year mortgage, the savings total $207 monthly, or nearly $2,486 per year.
These reductions highlight how rate shifts of even 50 to 100 basis points materially alter the economics of homeownership, especially for borrowers stretching to enter higher-priced markets.
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How today compares to last summer’s rates
Even relative to August 2024, when mortgage rates had already begun edging down, today’s environment is more favorable.
At that point, the 30-year average hovered around 6.53% and the 15-year around 5.92%. Payments on a $500,000 mortgage then would have been:
• 30-year fixed at 6.53 percent: $3,170.21 per month
• 15-year fixed at 5.92 percent: $4,197.70 per month
Today’s borrowers save about $172 per month on a 30-year mortgage compared with August, or roughly $2,069 annually. On a 15-year mortgage, the savings are around $112 per month, or about $1,347 per year.
These incremental improvements enhance monthly cash flow at a time when consumers are still contending with elevated prices across essentials, from insurance to utilities.
Prospects for further rate cuts in 2026
Whether the easing trend continues is uncertain. After the December meeting, the consensus among economists is that the Fed may deliver only one additional rate cut in 2026.
Even that outcome is not assured. The central bank has signaled a shift to a more cautious posture while it gauges how the economy digests the cumulative 75 basis points in cuts implemented since September.
Chair Jerome Powell reiterated that policy is approaching neutral territory. Inflation remains above the 2 percent target, and the recent government shutdown has limited the availability of timely economic indicators, complicating the Fed’s assessment of both price stability and labor-market conditions.
The trajectory of inflation will be decisive. Sustained progress toward 2 percent could justify further easing to support credit expansion and job growth. Conversely, if inflation stalls or reaccelerates, the Fed may have to pause cuts or even reverse course to cool demand.
A final variable is leadership uncertainty. Powell’s term expires in May 2026, raising questions about continuity and policy orientation. A change at the helm could influence the pace and direction of monetary adjustments next year.
For prospective borrowers, today’s mortgage rates present a more favorable window than at any point over the last eighteen months.
Whether that window widens or narrows in 2026 will depend on how inflation, growth, and Fed leadership converge in the months ahead.
