Why Have Mortgage Rates Increased Since The Fed Cut Rates? (Explainer Article)

[Robin Simon]

Many people are asking why mortgage rates have increased – by a lot – since the Federal Reserve lowered interest rates on September 19, 2024. This cut, the first one in over four years, and a “double cut” (50 basis points instead of 25) led many in the real estate world and great financial economy to rejoice. Rates were finally supposed to move down after a long period of stubbornly high mortgage rates.

Real Estate Investors, many of whom were sitting on the sidelines the past couple of years, as DSCR Loan Rates, or rates for the most popular mortgage loan option for buying rental properties, remained high, sitting in the 7% to 9% range through most of 2022 and 2023, and even touching double digits for some borrowers. The DSCR Loan rates of 2020 and 2021, when the Federal Reserve kept their rates at or near zero, were around 4 to 5 percent, making the numbers work terrifically for real estate investors scooping up properties yielding high rents and low financing costs.

DSCR Loan Rates, which typically trade about 2.5% to 3% higher than the US Five Year Treasury Bond, started to rise again after falling all summer. As you can see in the chart below, the Federal Reserve rate cut, treasury yields marched straight up and to the right – dramatically increasing, and DSCR loan rates followed suit.

Why Have DSCR Loan Interest Rates Risen Since the Fed Cut Rates?

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