📕Don’t Confuse the Fed with Your Mortgage Rate

Written By Jennifer Patel

The Federal Reserve is back in the headlines this week, and once again, everyone’s asking the same question: “What does this mean for mortgage rates?” The truth is, while the Fed Funds Rate is a powerful tool, it’s not a direct lever for your 30-year fixed mortgage. Mortgage rates respond to a bigger mix of factors, including bond yields, investor demand, inflation expectations—and yes, local market conditions.

So, what’s happening now? Mortgage rates have eased slightly from earlier highs and forecasts hint at modest declines into late 2025 and 2026. But don’t expect a straight line down, especially in Arizona where rates often sit a little higher than the national average. Let’s unpack what the Fed Funds Rate actually is, how it connects to mortgages, where rates stand today, and what scenarios could play out for the rest of the year and beyond.

🏩 What Is the Fed Funds Rate?

The Fed Funds Rate is the overnight interest rate banks charge each other for borrowing reserves. The Federal Open Market Committee (FOMC) sets a target range for this rate, adjusting it up or down based on inflation, jobs, and overall economic health.

Think of it as the Fed’s steering wheel for the economy. But while it steers things like credit card and auto loan rates, it doesn’t directly dictate your mortgage payment.

📌How It Affects Mortgage Rates

Here’s the catch: short-term loans (like HELOCs or credit cards) move almost lockstep with the Fed Funds Rate. Long-term mortgage rates, however, are driven more by the 10-year Treasury yield and the market for mortgage-backed securities (MBS).

That’s why mortgage rates can sometimes rise even if the Fed cuts—or fall before the Fed acts—because bond markets move on expectations, not just announcements.

📊 Where Mortgage Rates Are Now

As of mid-September 2025:

  • The 30-year fixed mortgage rate averages around 6.38% nationally (Bankrate).

  • In Arizona, the average sits at 6.52% (Bankrate), showing a +0.14% premium over the national figure.

  • The 15-year fixed is hovering between 5.50%–5.75%.

Rates have eased from earlier peaks near 7%, thanks to cooling inflation data and expectations that the Fed may cut rates later this year.

đŸŒ” Why Arizona Rates Can Run Higher Than National Averages

National forecasts are a helpful guide—but Arizona borrowers often see slightly higher rates than the averages reported in the headlines. Why?

  • Local demand & supply: Arizona’s rapid population growth and tight housing inventory create upward pressure on prices, and lenders sometimes build in higher margins.

  • Borrower profiles: If local averages show higher debt-to-income ratios or smaller down payments, lenders add a “risk premium.”

  • Operational costs & competition: Fewer lenders in certain areas and higher local costs (like insurance or property taxes) can nudge rates higher.

  • Geographic risk: Exposure to natural events like wildfires or floods increases insurance costs, which can indirectly affect loan pricing.

The difference isn’t dramatic—usually about 0.10% to 0.35% above national averages—but enough that Arizona deserves its own range when looking ahead.

📉 Historical Context: 2023–2025

Here’s how national vs. Arizona rates have stacked up over the past three years:

National averages from Freddie Mac PMMS/Bankrate; Arizona rates estimated by adding a ~0.15% premium based on recent observed spreads.

Disclaimer: These Arizona averages are approximations, not official published state-level data. They illustrate the typical premium range (about +0.10% to +0.35%) rather than precise year-long survey data.

🔼 Forecasts for End-2025 and Into 2026

Here’s what forecasters are saying nationally:

  • Fannie Mae expects the 30-year fixed rate to end 2025 near 6.4–6.5% and drift toward ~6.0% in 2026.

  • Expert consensus (MBA, Investopedia, others) points to a modest decline into the low-6% range by late 2025, possibly dipping into the high-5’s if the economy slows further.

  • Realtor.com projects rates staying in the mid-6% range this year, with easing into the low-6’s by end-2026.

Overlaying the Arizona premium, that means:

  • End-2025 (AZ): ~6.5–6.6%.

  • End-2026 (AZ): ~6.2–6.4%.

🔗 Read More Here:

⚠ Best-, Base-, and Worst-Case Scenarios

đŸŒMama Bear’s Take

The Fed may start trimming rates by late 2025, but mortgage rates won’t tumble overnight. Expect gradual easing, not a freefall. For buyers, waiting on “the perfect rate” could backfire if home prices creep higher. For homeowners eyeing a refinance, a small drop in rates may still create real savings.

Bottom line: the Fed is just one lever. Mortgage rates will keep following inflation, bond markets, investor sentiment—and here in Arizona, the local factors that tend to keep our rates just a touch higher than the national average.

🛑Stop waiting for the perfect rate. Let’s make a game plan to get you into a new home today.

Jennifer Patel
Next

Rent Checks Build Wealth
 But Not Yours