Why Mortgage Rates Are Rising Despite Fed Cuts (And Smart Alternatives to Consider)

The Federal Reserve made its third and final rate cut of 2024, yet mortgage rates continue to rise. Why is this happening? Mortgage rates don’t directly follow the Fed’s rate cuts; instead, they respond to broader economic signals. This time, the Fed’s hint at higher rates in 2025 spooked the bond market, causing Treasury yields to spike. In turn, lenders adjusted their mortgage rates higher.

Despite these rising rates, there is some good news for borrowers. HELOC (Home Equity Line of Credit) rates, which are directly tied to the Fed rate, have decreased. Borrowing through a HELOC is now significantly cheaper than most other lines of credit or credit cards. For homeowners looking to tap into their equity, this can be a smart and cost-effective option in today’s market.

Other Easy Investment Mortgages to Consider

For those exploring investment opportunities or alternative financing options, there are several types of mortgages that might fit your needs:

1. FHA Loans

Federal Housing Administration (FHA) loans are known for their low down payment requirements and lenient credit score criteria. While primarily designed for first-time homebuyers, they can also be an excellent option for those looking to invest in smaller rental properties.

2. VA Loans

If you’re a veteran or active-duty service member, VA loans offer zero-down payment options with competitive interest rates. While they’re primarily for primary residences, some creative strategies can make these loans work for multi-family properties where the borrower lives in one unit.

3. DSCR Loans

Debt-Service Coverage Ratio (DSCR) loans are tailored for real estate investors. These loans don’t focus on your personal income but rather on the cash flow generated by the property you’re financing. If the rental income can cover the mortgage payments, you’re likely to qualify, making this an ideal choice for investment properties.

4. Adjustable-Rate Mortgages (ARMs)

ARMs can offer lower initial rates compared to fixed-rate mortgages, making them attractive for short-term investors or those planning to sell or refinance before the adjustable period begins.

5. Portfolio Loans

These are specialized loans offered by certain lenders who keep the mortgage in-house instead of selling it on the secondary market. Portfolio loans often have flexible qualification requirements, making them a good choice for investors with unique circumstances.

Is Refinancing Still a Good Option?

Even though mortgage rates are higher than they were a few months ago, they remain lower than they’ve been in the past year and a half. If you’re still holding onto a high-interest rate, refinancing could save you money over the long term.

Additionally, if you’re looking to consolidate debt or fund home improvements, a HELOC or other investment-focused mortgage product could provide you with the financial flexibility you need.

Let’s Talk About Your Options

Navigating the mortgage market can feel overwhelming, but you don’t have to do it alone. Whether you’re looking to refinance, invest in a new property, or explore HELOCs, we’re here to help. Reach out to Prime Mortgage LLC today. DM, call, or text us anytime—we’re licensed in NJ, FL, and CT and ready to guide you through the process!