Mortgage rates have climbed to 6.32% on the eve of the Federal Reserve‘s final 2025 meeting, leaving prospective homebuyers facing an unexpected squeeze just as relief seemed imminent. According to The Mortgage Reports, the 30-year fixed mortgage rate increased by five basis points on Monday to 6.324%. Lenders appear to be acting ahead of Wednesday’s widely expected rate cut.
For a typical American household aiming for the median-priced home of $415,200 (£312,251), the monthly mortgage payment is now approximately $2,052 (£1,543). This amounts to roughly 24% of the average family’s income, based on analysis from Bankrate cited by CBS News.
Why Are Rates Rising Before An Expected Cut?
The rise in mortgage costs before the anticipated rate reduction shows market movements in different directions. CME FedWatch indicates an 88% chance of a quarter-point cut, which would bring the federal funds rate to between 3.75% and 4%. Despite these expectations, uncertainty remains, influencing borrowing trends.
‘Uncertainty ahead of the Federal Open Market Committee’s December meeting could result in short-term volatility in mortgage rates as more data comes in,’ Said Sam Williamson, senior economist at First American, in comments reported by The Mortgage Reports. The Fed’s decision is due at 7pm GMT (2pm EST) on Wednesday, after a two-day meeting starting today. This would be the third consecutive rate cut since September and October, though mortgage costs have shown little movement despite the shifts.
The Affordability Crunch Is Tightening
For buyers who have waited years to act, the timing could not be more frustrating. After starting 2025 above 7%, mortgage rates fell to three-year lows multiple times, briefly touching 5.99% in November, according to Zillow data. That window now appears to be closing.
The wider economic picture offers little comfort. Employers have cut more than 1.1 million jobs through November — the highest figure since 2020 and a 54% increase from the same period last year. Meanwhile, tariff-fuelled inflation continues to pressure household budgets, with the National Federation of Independent Business reporting that the share of small business owners increasing prices surged by 13 percentage points in November — the largest monthly increase recorded in the survey.
Bankrate analysts highlight that affordability concerns are dominating US discussions, with the Federal Reserve poised for a third rate cut despite limited recent inflation data, as noted in CBS News.
What This Means for Your Mortgage Search
The gap between what the Fed does and home loan prices comes down to a key point many overlook: mortgage rates tend to follow government bond returns and future expectations, not the main interest rate itself. Currently, the 10-year Treasury bond yield has risen to 4.179%, pushing mortgage costs higher even with talk of upcoming cuts, according to The Mortgage Reports.
Historical patterns show rates often decline before Fed announcements, as seen in September and October 2025, when they reached lows pre-cut and then rose afterward. Market data supports this trend.
Fannie Mae predicts the average 30-year mortgage rate will stay at around 6.3% through the end of 2025, then gradually decline to about 5.9% by late 2026. The Mortgage Bankers Association is more cautious, projecting rates will remain steady at 6.4% throughout next year.
A Divided Fed Faces Tough Choices
Not all committee members are expected to support Wednesday’s rate cut. Federal Reserve Chair Jerome Powell warned in October that a December reduction was not a ‘foregone conclusion’, citing signs that the labour market remains resilient despite ongoing layoffs.
‘It’s difficult to recall a time when the Federal Open Market Committee has been so evenly divided about the need for additional rate cuts,’ said Michael Pearce, chief US economist at Oxford Economics, CBS News reported.
For homebuyers, the message is clear: waiting for the perfect rate may be costly. Those with the financial flexibility to act now could find opportunities that vanish by year’s end, while others face the tough decision of whether to stretch their budgets or hold out in an uncertain market.
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