How a Fed rate hike can affect mortgages — and affordable lenders to help you save

There's more disappointing news for home shoppers who had hoped this would be the year mortgage rates finally dipped below 6%: Rates are now above 6.70%, and they're likely to remain around this level through the end of the year.

The average 30-year fixed mortgage rate will likely stay between 6.50% and 6.70% through 2026, according to Joel Berner, a senior economist at Realtor.com, who spoke with CNBC Select in July. Berner's forecast was based on a June 22 prediction from Bank of America Global Research that the Federal Reserve would raise interest rates at least once this year. Experts now expect that increase to come after the Fed's September meeting on Wednesday.

In a report earlier this summer, Bank of America pointed to higher-than-expected inflation — driven in large part by the war in Iran — as a reason for its projected rate increase. The forecast marks a sharp shift from the bank's prediction earlier in 2026 that the Federal Reserve would cut rates this year.

While this may not be the news home shoppers were hoping for, it could encourage some would-be buyers to come off the sidelines by providing more clarity after months of uncertainty, Berner said.

"I think we're in, for now at least, a steady landing zone," Berner said. "And this is really what I think the market has been waiting for, because there's been so much seesaw activity [with] rates this year up to this point."

Below, Select explains how the federal funds rate (FFR) relates to mortgage rates, what current rate expectations could mean for homebuyers and which lenders offer below-average mortgage rates.

To answer this question, let’s start with the basics: what the FFR is, why it’s used and what it does. Then we can go into its relationship with mortgage rates. 

What is the FFR and how does it work? 

The FFR is the target interest rate set by the Federal Open Market Committee. It dictates the rate at which commercial banks lend and borrow their excess reserves to each other overnight. These financial institutions pass the cost on to the everyday consumer, so the lower the rate, the less they charge consumers for debt, and the higher the rate, the more they charge. 

Does the FFR impact mortgage rates? 

While the FFR steers the cost of short-term debt, like credit card balances and personal loans, the 10-year Treasury Yield — driven by financial markets rather than a regulatory body — guides the rates for long-term debt, like mortgages. 

The FFR does not dictate how the 10-year Treasury Yield moves, but it is a factor with a large influence. Additionally, supply and demand, geopolitical events, inflation, job growth and unemployment all play a role in where the rate goes. 

What do multiple consecutive FFR increases do to mortgage rates? 

Multiple hikes over a short period likely won’t impact mortgage rates unless they are not anticipated, Berner said. If the prediction for a trio of increases does come to fruition, we can be relatively sure that we’re at the lowest point we will be at for the rest of the year, he said. 

“I think that if we are going to see hikes for the remainder of the year, this kind of 6.5% mortgage rate might be the floor,” Berner added. 

Berner told CNBC Select that timing the market is a fool's errand.

"There's just so many things that can move against you, and waiting on mortgage rates to be perfect is just not a game that's going to go your way a majority of the time," Berner said. "So I think take advantage of this period of stability, make your budget around a 6.5% mortgage rate, because that's probably where we're going to be for the time being, and just see what it is you can afford."

If it’s the right time for you to buy a home despite the current environment, there are things you can do to get a better rate. One of the biggest factors is your lender — some consistently offer lower-than-average rates that can help you get the best deal. 

Try a credit union

Credit unions are one such type of lender with lower-than-average rates. That’s because these institutions are member-owned, meaning any profits they make go back into products for union members. 

At CNBC Select, we think FourLeaf Federal Credit Union is a great option for shoppers. Unlike many credit unions that have relatively restrictive membership guidelines, FourLeaf Federal has a simple requirement: Open a savings account and deposit $5. 

Additionally, we like that FourLeaf offers a free rate lock for 60 days, so if rates go up, you’ll be able to keep the one you have when you applied. Plus, it has 5,000 credit union branches nationwide, so you can deal with your mortgage online or in person. 

Consider an online-only lender 

Online-only lenders, like Better Mortgage, also tend to have lower-than-average rates. What’s more, Better Mortgage is speedy — its time to close averages 19 days, about half of the national average. Lastly, if it can’t match a lower rate you got elsewhere, it will give you $100.

Go with an FHA loan 

FHA loans are backed by the Federal Housing Administration and funded through private lenders. They boast lower rates than conventional mortgages and are available to Americans with a 580 credit score or higher. Plus, you can put as little as 3.5% down. 

Rocket Mortgage is one of the largest FHA loan lenders in the country. It also has one of the best customer service records: it received an A+ from the Better Business Bureau and frequently tops the J.D. Power customer satisfaction lists. Its time-to-close is also quick, at 22 days, nearly half the average time.

At CNBC Select, our mission is to provide our readers with high-quality service journalism and comprehensive consumer advice so they can make informed financial decisions. Every mortgage article is based on rigorous reporting by our team of expert writers and editors with extensive knowledge of the products. While CNBC Select earns a commission from affiliate partners on many offers and links, we create all our content without input from our commercial team or any outside third parties, and we pride ourselves on our journalistic standards and ethics.

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