The Fed Cut Rates. Your Mortgage Went Up.
The gap between headlines and borrowing costs that most investors miss
The Fed cuts rates and everyone exhales. Finally. Relief is coming. Cheaper money is on the way.
Then you call your lender. And the rate is higher than it was last month.
This happens constantly. And almost nobody understands why.
The Fed funds rate gets all the headlines. Every press conference. Every prediction. Every talking head on cable news telling you what it means for your money. The entire industry holds its breath waiting for one number.
But that number doesn’t price your mortgage.
The Reality: The Fed controls one rate. Your borrowing cost is priced off a dozen. And most of them have nothing to do with what the Fed decided last Wednesday.
But here’s what most investors haven’t connected. The rates that actually determine what you pay move on completely different timelines, driven by completely different forces.
The 10-year Treasury yield is what benchmarks most residential mortgages. It moves on bond market sentiment, inflation expectations, and global demand for U.S. debt. The Fed can cut rates while the 10-year climbs. It happens more often than people think.
SOFR drives most floating-rate commercial loans. It tracks overnight lending between banks. Closer to the Fed’s influence, but still not a direct mirror.
Then there’s bank cost of funds, which varies by region and institution. Two lenders in the same city can offer different rates on the same deal because their cost of capital is different.
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Credit spreads add the risk premium the market demands. When uncertainty rises, spreads widen. Even if the base rate drops, wider spreads can push your borrowing cost up.
And lender margin sits on top of all of it. Their profit. Non-negotiable from their side. Variable from yours depending on the relationship.
Stack those together and you have five layers between the Fed’s decision and your actual rate. Each one moves independently. Each one responds to different signals.
That’s why waiting for the Fed to “fix” rates is the most expensive strategy in real estate right now. You’re watching one lever while a dozen others move against you.
I’ve seen investors sit on the sidelines for two years waiting for a rate environment that hasn’t come. Meanwhile, the investors who underwrote for today’s rates closed deals, generated income, and recycled capital three times over.
The deals that work at today’s rates are deals worth doing. The deals that only work “when rates drop” aren’t investments. They’re speculation dressed up in a pro forma.
The rate environment you’re in is the rate environment you build for. Not the one you’re hoping for. Not the one the headlines promise is coming.
The Bottom Line: The Fed moves one lever. The market moves a dozen. Most investors make decisions based on the headline rate. You’re learning to underwrite for the rate you’re actually paying. That’s the difference between waiting for conditions to improve and building something that works regardless.
Are you making decisions based on today’s rates or the rates you’re hoping for?
If you want to understand how these rate layers affect your next deal, I’m happy to walk through it.
Cheers,
Jon
P.S. The Fed doesn’t set your rate. They set the one everyone watches while the ones that matter move on their own.